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As filed with the Securities and Exchange Commission on December 2, 2019.

Registration No. 333-234730

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

BILL.COM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware   7372   83-2661725
(State or other jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer Identification Number)

 

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

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

 

René Lacerte

Chief Executive Officer and Founder

Bill.com Holdings, Inc.

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

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

 

 

James D. Evans

Mark C. Stevens

Dawn H. Belt

Nicolas H. R. Dumont

Fenwick & West LLP

801 California Street

Mountain View, California 94041

(650) 988-8500

 

Raj Aji

General Counsel,

Chief Compliance Officer and Secretary

Bill.com Holdings, Inc.

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

  

Raj S. Judge

Andrew D. Hoffman

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

 

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

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

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, 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 Securities Exchange Act of 1934, as amended.

 

Large accelerated filer 

     Accelerated filer 

Non-accelerated filer

     Smaller reporting company 
     Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.    

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount

To Be

Registered(1)

 

Proposed

Maximum

Offering Price
Per Share

 

Proposed

Maximum

Aggregate

Offering Price(1)

 

Amount of

Registration fee(2)

Common stock, par value $0.00001 per share

  10,147,058   $18.00   $182,647,044   $23,708

 

 

(1)

Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes an additional 1,323,529 shares that the underwriters have the option to purchase.

(2)

The Registrant previously paid $12,980 of this amount in connection with the initial filing of this Registration Statement.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act 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.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated December 2, 2019

8,823,529 Shares

 

 

LOGO

Common Stock

 

 

This is the initial public offering of our common stock.

Prior to this offering, there has been no public market for our shares of common stock. It is currently estimated that the initial public offering price per share will be between $16.00 and $18.00 per share.

We have been approved to list our common stock on the New York Stock Exchange under the symbol “BILL.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering.

 

 

See the section titled “Risk Factors” beginning on page 13 to read about factors you should consider before buying shares of our common stock.

 

 

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

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount(1)

   $        $    

Proceeds, before expenses

   $        $    

 

(1)

See the section titled “Underwriting” beginning on page 13 of this prospectus for additional information regarding total underwriting compensation.

To the extent that the underwriters sell more than 8,823,529 shares of our common stock, the underwriters have an option to purchase up to an additional 1,323,529 shares from us at the initial public offering price, less the underwriting discount.

Certain entities affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to 1,500,000 shares of our common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such entities may determine to purchase more, less, or no shares in this offering, or the underwriters may determine to sell more, less, or no shares to such entities. The underwriters will receive the same discount from any shares of common stock sold to such entities as they will from any other shares of common stock sold to the public in this offering.

The underwriters expect to deliver the shares against payment in New York, New York, on or about                     , 2019.

 

Goldman Sachs & Co. LLC   BofA Securities   Jefferies         KeyBanc Capital Markets

 

Canaccord Genuity    Needham & Company    William Blair

 

 

Prospectus dated                     , 2019


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LOGO

“Bill.com gave me my life back!” Jeremy Pyles, Founder and CEO of Niche, a modern lighting company - PDF to EO/HTML I- File BlU’d - JPG with white searchable text “I like Bill.com because it’s much, much easier for me to see our cash on hand.” Keeley Tillotson, Founder and CEO of Wild Friends Foods, a clean-food company “Bill.com is like an extra partner in the office... it helps me be more productive.” Mark Lindsay, Managing Director at Lindsay Leasing, a property management company “Bill.com is reliable, dependable, trustworthy, and secure-all the things you want to see in your finance chain.” AndyCiorda, Partner at The Secret Chocolatier, a boutique chocolate business “Bill.com has made a huge difference to our operations... freeing up precious time to focus on more important initiatives.” Diana Westrop, Controller at Atlanta Humane Society “Without Bill.com we would have had to hire at least one more full-time accounts payable person.” Jurie Victor, Finance Manager at Spikeball’’, a sports equipment company “Bill.com saved us from having to outsource our accounts payable. By not handing it over to an outside firm we saved about $150,000 last year.” David Ostrowe. President of O&M Restaurant Group, a Burger King. Taco Bell and Blaze Pizza franchisee “Bill.com is the cornerstone of our business. The success of our clients, and our company, depends on it.” Laura Redmond, Founder of Redmond Accounting


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     13  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     49  

INDUSTRY AND MARKET DATA

     51  

USE OF PROCEEDS

     52  

DIVIDEND POLICY

     53  

CAPITALIZATION

     54  

DILUTION

     57  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     60  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     64  

A LETTER FROM BILL.COM CEO AND FOUNDER RENÉ LACERTE

     95  

BUSINESS

     97  

MANAGEMENT

     123  

EXECUTIVE COMPENSATION

     131  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     144  

PRINCIPAL STOCKHOLDERS

     147  

DESCRIPTION OF CAPITAL STOCK

     150  

SHARES ELIGIBLE FOR FUTURE SALE

     157  

MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

     160  

UNDERWRITING

     165  

LEGAL MATTERS

     172  

EXPERTS

     172  

WHERE YOU CAN FIND MORE INFORMATION

     172  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

Through and including             , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor any of 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. Neither we nor any of the underwriters take 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 is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock.

For investors outside 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 in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.


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PROSPECTUS SUMMARY

This summary highlights selected information presented in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Special Note Regarding Forward-Looking Statements,” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, March 31, and June 30. Our fiscal years ended June 30, 2017, 2018, and 2019 are referred to herein as fiscal 2017, fiscal 2018, and fiscal 2019, respectively.

Overview

Our mission is to make it simple to connect and do business.

We are champions of small and midsize businesses (SMBs). We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs. By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.

Our purpose-built, artificial-intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Customers use our platform to generate and process invoices, streamline approvals, send and receive payments, sync with their accounting system, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, and payment processors, enabling our customers to access these mission-critical services through a single connection. As a result, we are central to an SMB’s accounts payable and accounts receivable operations.

We Make Paper-based Manual Transaction Processing Obsolete

We believe we have a significant opportunity to help millions of SMBs improve their financial operations. Most SMBs are still dependent on manual accounts payable and accounts receivable processes: mailing invoices, printing paper checks, waiting for payments, and storing paper in filing cabinets. According to the SMB Technology Adoption Index, in 2016 over 90% of SMBs surveyed still relied on paper checks to make and accept business-to-business payments. Manual processes are time-consuming, inefficient, and costly. A survey of back-office employees by Levvel Research points to process issues, such as long approval cycles and missing information on invoices, as the leading cause of late payments and missed discounts. Customers who adopt our platform benefit from streamlined back-office processes, as evidenced by our customers’ electronically exchanging more than 8,000 messages per day, approving more than 2.4 million bills per month, and storing almost 45 million documents per year, collectively, as of June 30, 2019.

Today, over 81,000 customers trust our platform to manage their financial workflows and process their payments, which totaled over $70 billion for fiscal 2019, and nearly $22 billion for the three months ended September 30, 2019. As of June 30, 2019, we had over 1.8 million network members. We define network members as our customers plus their suppliers and clients with accounts on our platform. Our network members entrust us with their bank account details, enabling them to connect, invoice, pay, and get paid electronically.

Because many of our customers use our platform to manage their end-to-end financial workflows, we have visibility into the entire transaction lifecycle. We leverage this transaction data to provide our



 

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customers with insights into their back-office processes and business relationships, which allows our customers to make more informed financial decisions.

We Partner with Many of the Most Trusted Accounting Firms and Financial Institutions in the United States

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales, and indirectly through accounting firms and strategic partners. As of September 30, 2019, our partners included some of the most trusted brands in the financial services business, including more than 70 of the top 100 accounting firms and several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express. As we add customers and partners, we expect our network to continue to grow organically.

We have grown and scaled our business operations rapidly in recent periods. Our total revenue was $64.9 million and $108.4 million for fiscal 2018 and 2019, respectively, an increase of 67%. For the three months ended September 30, 2018 and 2019, our total revenue was $22.4 million and $35.2 million, respectively, an increase of 57%. We incurred net losses of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively. For the three months ended September 30, 2018 and 2019, we incurred net losses of $0.9 million and $5.7 million, respectively.

Industry Trends

Back-Office Financial Workflows Are Essential to All Businesses

The transaction lifecycle—encompassing the processes that enable businesses to pay and get paid—is critical to every business. Businesses begin the transaction lifecycle by creating and mailing invoices, approving bills, and making payments, and end the process by recording and reconciling transactions in an accounting system. The ability to manage this critical set of activities efficiently and effectively is key for any business. Yet, for many businesses, cash flow is managed in a complex, inefficient, and all too often, paper-based manner.

SMBs are Underserved by Current Software Solutions

We believe SMBs, despite comprising a large part of the economy, are underserved by existing financial software solutions. Many software providers attempt to sell solutions designed for consumers or enterprises, which struggle to gain traction in the SMB market. Solutions for consumers are too simple, while enterprise solutions are too complex and expensive. Additionally, these products generally do not integrate well with other systems, requiring SMBs to piece together an expensive patchwork of individual products to meet their needs. We believe we have a greenfield opportunity to provide SMBs with a platform to automate their back-office financial operations.

SMBs Generally Rely upon Antiquated and Inefficient Processes

SMBs generally handle their financial workflows the same way they have for decades. The lack of an end-to-end financial software platform tailored for SMBs results in a back office that is:

 

   

Manual and Cumbersome.    Legacy back-office workflows are plagued by manual data entry and inefficiency, resulting in a transaction lifecycle that takes too long and costs too much.

 

   

Inaccurate and Error-Prone.    Legacy processes rely upon disparate systems throughout the transaction lifecycle. Multiple entries in different systems introduce the risk of improperly recorded transactions, unreconciled items, or late payments and associated penalty fees.

 

   

Paper-Based and Not Secure.    Traditional financial processes are dependent on paper throughout the transaction lifecycle, including mailed invoices, signatures on documents



 

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indicating approval to pay, and the issuance of physical checks. This is not only inefficient and costly but also not secure, leaving SMBs exposed to fraud risk.

 

   

Lacking Visibility and Data.    Legacy workflows leave businesses with limited visibility into their current and future cash position as well as their accounts payable and accounts receivable workflows. SMBs lack data insights and tools to track usage, spend, and cash flows.

We believe SMBs deserve and are ready to adopt a modern, efficient, cloud-based offering that meets their needs.

Our Solution

Our cloud-based, intelligent platform was purpose-built as an end-to-end solution that automates the SMB back office and enables our customers to pay their suppliers and collect payments from their clients, in effect acting as a system of control for their accounts payable and accounts receivable activities. As a result, our platform frees our customers from cumbersome legacy financial processes and provides the following key benefits:

 

   

Automated and Efficient.    Our AI-enabled platform helps our customers pay their bills efficiently and get paid faster. We provide tools such as our Intelligent Virtual Assistant (IVA) that streamlines the transaction lifecycle by automating data capture and entry, routing bills for approval, and detecting duplicate invoices.

 

   

Unified, Integrated, and Accurate.    We provide an end-to-end platform that connects our customers to their suppliers and clients. Our platform integrates with accounting software, banks, and payment processors, enabling our customers to access all of these mission-critical partners through a single connection. Because we provide a unified view, customers can more easily find inconsistencies and inaccuracies, and fix them quickly.

 

   

Digital and Secure.    We enable secure connections and storage of sensitive supplier and client information and documents, such as invoices and contracts, and make them accessible to authorized users through our cloud-based application, on any device.

 

   

Visible and Transparent.    With our platform dashboard, customers can easily view their transaction workflows, enabling them to gain deeper insight into their financial operations and manage their cash flows intelligently.

Our Opportunity

According to the U.S. Census Bureau, there were approximately six million employer SMBs in the U.S. in 2018. Globally, there were approximately 20 million small and medium enterprises (SMEs) according to the SME Finance Forum’s 2019 database.

We estimate the annual addressable market for the services we offer today to be $30 billion globally and $9 billion domestically. We derive these estimates by multiplying our average fiscal 2019 revenue per customer of $1,500 by each of the 20 million SMEs globally and 6 million domestic employer firms.

In addition, we believe we have the following incremental monetization opportunities, including to:

 

   

expand our target market to include sole proprietors and larger companies;

 

   

enter international markets;

 

   

sell additional solutions or products on our platform; and



 

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capture more of the overall business-to-business payments flow from new and existing customers.

According to IDC, in 2019 small and lower-midsize businesses will spend approximately $65 billion on software in the U.S. We believe that we are well positioned to capture a meaningful portion of that spend as we increase the breadth of our platform to sell additional solutions or products.

According to a 2018 Mastercard report, North American companies make approximately $25 trillion of business-to-business payments annually, and, according to Deloitte, the United States market for SMB payments is expected to exceed $9 trillion in 2020. Over 90% of SMBs still rely on paper checks, according to a survey by the SMB Technology Adoption Index. As more SMBs move to digital payments, we believe we are well-positioned to capitalize on this evolution.

Our Go-to-Market Strategy

We seek to acquire customers in an efficient manner. We market our platform directly to businesses through online digital marketing and referral programs and indirectly by leveraging partnerships with accounting firms, financial institutions, and accounting software companies.

Direct-to-SMBs.    Our direct-to-SMB strategy leverages digital customer acquisition tools, supported by efficient inside sales capabilities, and a steady stream of new SMBs continuously introduced to our platform through our 1.8 million network members as of June 30, 2019.

Accounting Firms.    Our accountant-specific tools help firms grow their client advisory services practices and establish a competitive advantage, while delivering our platform to their large base of SMB clients. We currently partner with more than 70 of the top 100 accounting firms, and over 4,000 accounting firms nationwide.

Financial Institutions.    SMBs look to financial institutions for digital solutions for end-to-end cash flow management. As a result, many of those financial institutions turn to us to meet their customers’ needs. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our directly-acquired customers. We are currently integrated with several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express.

Accounting Software Companies.    We are integrated with Intuit QuickBooks, making our features available to millions of SMBs. In addition, we have referral relationships with several other popular accounting software providers, including Oracle NetSuite and Sage Intacct.

What Sets Us Apart

 

   

Purpose-Built for SMBs.    Our easy-to-use, unified platform provides SMBs with core functionality and value-added services generally reserved for larger companies. Through our cloud-based desktop and mobile applications, SMBs can connect and do business from anywhere, at any time.

 

   

Diverse Distribution Channels.    We leverage both direct and indirect channels—accounting firms, financial institution partners, and accounting software integrations—to efficiently reach our target market.

 

   

Large and Growing Network of Connected Businesses.    As accounts receivable customers issue invoices and accounts payable customers pay bills on our platform, they



 

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connect to their clients and suppliers, driving a powerful network effect. This aids our customer acquisition efforts by increasing the number of businesses connected to our platform, which then become prospects.

 

   

Large Data Asset.    We have a large data asset as a result of processing millions of documents and billions of dollars in business payments annually for our customers. By leveraging our AI and machine learning capabilities, we generate insights from this data that drive product innovation.

 

   

Risk Management Expertise.    Leveraging our data, our risk engine has trained upon millions of business-to-business ACH, check, card, and wire transactions. Our AI capabilities have enhanced the power of that engine, enabling us to keep our customers’ funds secure.

 

   

Experienced Management Team and Vibrant Culture.    Our management team and employees have deep experience with SMBs, software-as-a-service (SaaS) companies, and financial institutions.

Our Growth Strategy

Key elements of our growth strategy include:

 

   

Acquiring new customers;

 

   

Increasing adoption by our existing customers;

 

   

Growing the number of network members;

 

   

Expanding our platform capabilities; and

 

   

Expanding internationally.

Risks Associated with Our Business

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

 

   

We have a history of operating losses and may not achieve or sustain profitability in the future;

 

   

Our recent rapid growth, including growth in our volume of payments, may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively;

 

   

We transfer large sums of customer funds daily, and are subject to the risk of loss, errors, and fraudulent activities of customers or third parties, any of which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results;

 

   

Customer funds that we hold in trust are subject to market, interest rate, foreign exchange, and liquidity risks, as well as general political and economic conditions. The loss of these funds could have a material adverse effect on our business;

 

   

We earn revenue from interest earned on customer funds held in trust while payments are clearing, which is subject to market conditions and may decrease as customers’ adoption of electronic payments and technology continues to evolve;

 

   

If we are unable to attract new customers or convert trial customers into paying customers, our revenue growth and operating results will be adversely affected;



 

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If we are unable to retain our current customers or sell additional functionality and services to them, our revenue growth will be adversely affected;

 

   

Our business depends, in part, on our relationships with accounting firms;

 

   

Our business depends, in part, on our strategic partnerships with financial institutions;

 

   

Our business depends, in part, on our relationship with Intuit;

 

   

The markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed; and

 

   

Payments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business.

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 (SEC), the investor relations page on our website, www.bill.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.

Corporate Information

BDC Payments Holdings, Inc., a Delaware corporation, was formed in August 2018, and changed its name to Bill.com Holdings, Inc., a Delaware corporation, in June 2019. Bill.com Holdings, Inc. is a holding company and its principal assets are the equity interests of Bill.com, LLC. We were initially formed in April 2006 as Cashboard, Inc., a Delaware corporation. We changed our name to Cashview, Inc. in September 2006 and to Bill.com, Inc. in December 2007. In November 2018, we completed a corporate reorganization whereby Bill.com, Inc. became a subsidiary of Bill.com Holdings, Inc., and reorganized as a LLC, Bill.com LLC. Our principal executive offices are located at 1810 Embarcadero Road, Palo Alto, California 94303. Our telephone number is (650) 621-7700. Our website address is www.bill.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock. Unless otherwise indicated, the terms “Bill.com,” “we,” “us,” and “our” refer to Bill.com Holdings, Inc., together with our subsidiary, Bill.com LLC.

Bill.com, the Bill.com logo, and other registered or common law trade names, trademarks, or service marks of Bill.com appearing in this prospectus are the property of Bill.com. This prospectus contains additional trade names, trademarks, and service marks of ours and of other companies. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us, by these other companies. Other trademarks appearing in this prospectus are the property of their respective holders. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.



 

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Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (JOBS Act). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

 

   

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act);

 

   

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

 

   

reduced disclosure about our executive compensation arrangements;

 

   

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

 

   

extended transition periods for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, 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 the completion of this offering.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of 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 operating results and consolidated financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our common stock less attractive as a result, which may result in a less active trading market for our common stock and higher volatility in our stock price.



 

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The Offering

 

Common stock offered by us

   8,823,529 shares

Option to purchase additional shares of common stock

  


1,323,529 shares

Common stock to be outstanding immediately after this offering

  


69,554,392 shares (70,877,921 shares, if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full).

   We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $134.3 million, or approximately $155.3 million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

Use of proceeds

   We intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include research and development, sales and marketing, general and administrative matters, and capital expenditures. We may also use a portion of the proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time. See the section titled “Use of Proceeds” for additional information.

Risk factors

   See the section titled “Risk Factors” and other information included in this prospectus for a discussion of some of the factors you should consider before deciding to purchase shares of our common stock.

Indication of Interest

   Certain entities affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to 1,500,000 shares of our common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such entities may determine to


 

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   purchase more, less, or no shares in this offering, or the underwriters may determine to sell more, less, or no shares to such entities. The underwriters will receive the same discount from any shares of common stock sold to such entities as they will from any other shares of common stock sold to the public in this offering.

New York Stock Exchange trading symbol

   “BILL”

The number of shares of our common stock to be outstanding after this offering is based on 60,730,863 shares of our common stock outstanding as of September 30, 2019 and excludes:

 

   

11,246,769 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2019, with a weighted-average exercise price of $6.98 per share under our 2006 Equity Incentive Plan (the 2006 Plan), and our 2016 Equity Incentive Plan (the 2016 Plan);

 

   

961,750 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $16.27 per share;

 

   

62,500 shares of our common stock issuable upon the exercise of outstanding warrants to purchase common stock outstanding as of September 30, 2019, with a weighted-average exercise price of $6.40 per share;

 

   

51,370 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $1.46 per share;

 

   

12,500 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series D redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $2.50 per share;

 

   

5,632,463 shares of common stock that are not currently outstanding but may become issuable, when certain conditions are met, upon the issuance and exercise of warrants with an exercise price of $4.50 per share; and

 

   

8,681,191 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 181,191 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) 7,100,000 shares of our common stock reserved for future issuance under our 2019 Equity Incentive Plan, or the 2019 Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii) 1,400,000 shares of our common stock reserved for issuance under our 2019 Employee Stock Purchase Plan (ESPP), which will become effective on the date of this prospectus.

On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2016 Plan will be added to the shares of our common stock reserved for issuance under our 2019 Plan, and we will cease granting awards under the 2016 Plan. Our 2019 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.



 

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Unless otherwise noted, the information in this prospectus reflects and assumes the following:

 

   

the automatic conversion of all shares of our redeemable convertible preferred stock outstanding as of September 30, 2019 into an aggregate of 52,434,505 shares of common stock in connection with the completion of this offering;

 

   

a 2-to-1 reverse stock split of our outstanding capital stock that was effected in November 2019;

 

   

the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, each of which will occur immediately prior to the completion of this offering;

 

   

no conversion price adjustment relating to our Series H redeemable convertible preferred stock, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, as described in “Description of Capital Stock”;

 

   

no exercise of outstanding stock options or warrants subsequent to September 30, 2019; and

 

   

no exercise of the underwriters’ option to purchase additional shares of our common stock in this offering.



 

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Summary Consolidated Financial Data

The following tables summarize our consolidated financial data. We derived our summary consolidated statements of operations for fiscal 2018 and 2019 and our summary consolidated balance sheet data as of June 30, 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations for the three months ended September 30, 2018 and 2019 and our summary consolidated balance sheet data as of September 30, 2019 from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results to be expected in any future period, and the results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending June 30, 2020 or any future period. You should read the following summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.

 

    Year Ended June 30,     Three Months Ended
September 30,
 
    2018     2019     2018     2019  
    (in thousands, except per share data)  

Consolidated Statements of Operations:

                                                                                                           

Revenue

       

Subscription and transaction fees

  $ 56,992     $ 85,951     $ 18,170     $ 28,548  

Interest on funds held for customers

    7,873       22,400       4,254       6,632  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    64,865       108,351       22,424       35,180  

Cost of revenue(1)

    19,372       29,918       6,341       9,147  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    45,493       78,433       16,083       26,033  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

       

Research and development(1)

    17,986       28,924       5,424       11,515  

Sales and marketing(1)

    19,290       30,114       5,944       10,267  

General and administrative(1)

    16,034       29,198       5,937       10,535  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    53,310       88,236       17,305       32,317  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (7,817     (9,803     (1,222     (6,284

Other income, net

    632       2,333       317       639  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (7,185     (7,470     (905     (5,645

Provision for (benefit from) income taxes

    10       (156     (21     51  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (7,195   $ (7,314   $ (884   $ (5,696
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (1.01   $ (0.94   $ (0.12   $ (0.69
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares used to compute net loss per share attributable to common stockholders, basic and diluted(2)

    7,155       7,797       7,423       8,231  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    $ (0.13     $ (0.09
   

 

 

     

 

 

 

Weighted-average number of shares used to compute pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)

      57,599         60,665  
   

 

 

     

 

 

 


 

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(1)

Includes stock-based compensation expense as follows (in thousands):

 

     Year Ended June 30,      Three Months Ended
September 30,
 
         2018              2019              2018              2019      

Cost of revenue

   $ 78      $ 331      $ 69      $ 148  

Research and development

     429        1,128        233        671  

Sales and marketing

     508        922        166        382  

General and administrative

     530        1,701        139        1,075  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,545      $ 4,082      $ 607      $ 2,276  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

See Notes 12 and 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders and pro forma net loss per share attributable to common stockholders, and the weighted-average number of shares used in the computation of the per share amounts.

 

     As of September 30, 2019  
     Actual     Pro Forma(1)     Pro Forma
As
Adjusted(2)
 
     (unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 157,642     $ 157,642     $ 292,854  

Working capital

     158,544       159,397       295,311  

Funds held for customers

     1,466,492       1,466,492       1,466,492  

Total assets

     1,662,157       1,662,157       1,795,793  

Redeemable convertible preferred stock warrant liabilities

     853       -         -    

Deferred revenue, current and non-current

     5,248       5,248       5,248  

Customer fund deposits

     1,466,492       1,466,492       1,466,492  

Redeemable convertible preferred stock

     276,307       -         -    

Accumulated deficit

     (123,352     (123,352     (123,352

Total stockholders’ (deficit) equity

     (105,981     171,179       305,517  

 

(1)

The pro forma consolidated balance sheet information reflects (i) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock, as if such conversion occurred on September 30, 2019, into 52,434,505 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation in Delaware that will become effective immediately prior to the completion of this offering.

(2)

The pro forma as adjusted consolidated balance sheet information reflects (i) all adjustments included in footnote (1) above, and (ii) the sale of 8,823,529 shares of our common stock in this offering at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) cash, cash equivalents and short-term investments, working capital, total assets, and total stockholders’ equity by $8.2 million, assuming that the number of shares offered, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) cash, cash equivalents and short-term investments, working capital, total assets, and total stockholders’ equity by approximately $15.8 million, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, operating results, and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We have a history of operating losses and may not achieve or sustain profitability in the future.

We were incorporated in 2006 and have experienced net losses and negative cash flows from operations since inception. We generated a net loss of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively, and of $0.9 million and $5.7 million during the three months ended September 30, 2018 and 2019, respectively. As of September 30, 2019, we had an accumulated deficit of $123.4 million. While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of subscription and transaction fee revenue to sustain or increase our growth or achieve or maintain profitability in the future. We also expect our costs and expenses to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we intend to continue to expend significant funds to further develop our platform, including introducing new products and functionality, and to expand our marketing programs and sales teams to drive new customer adoption, expand strategic partner integrations, and support international expansion. Our profitability each quarter is also impacted by the mix of our revenue generated from subscriptions and transaction fees, on the one hand, and interest earned on customer funds that we hold in trust, on the other. Any changes in this revenue mix will have the effect of increasing or decreasing our margins. We will also face increased compliance and security costs associated with growth, the expansion of our customer base, and being a public company. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for several reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications, delays, and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.

Our recent rapid growth, including growth in our volume of payments, may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

Our revenue was $64.9 million and $108.4 million, and our payment volume was $49.6 billion and $71.3 billion, for fiscal 2018 and 2019, respectively. For the three months ended September 30, 2018 and 2019, our revenue was $22.4 million and $35.2 million, and our payment volume was $15.5 billion and $22.0 billion, respectively. Although we have recently experienced significant growth in our revenue and payment volume, even if our revenue continues to increase, we expect our growth rate will decline in the future as a result of a variety of factors, including the increasing scale of our business. Overall growth of our revenue depends on a number of factors, including our ability to:

 

   

price our platform effectively to attract new customers and increase sales to our existing customers;

 

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expand the functionality and scope of the products we offer on our platform;

 

   

maintain the rates at which customers subscribe to and continue to use our platform;

 

   

maintain payment volume;

 

   

generate interest income on customer funds that we hold in trust;

 

   

provide our customers with high-quality customer support that meets their needs;

 

   

introduce our products to new markets outside of the United States;

 

   

serve SMBs across a wide cross-section of industries;

 

   

expand our target market beyond SMBs;

 

   

successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and

 

   

increase awareness of our brand and successfully compete with other companies.

We may not successfully accomplish any of these objectives, which makes it difficult for us to forecast our future operating results. Further, the revenue that we derive from interest income on customer funds is dependent on interest rates, which we do not control. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue from any prior quarterly or annual periods as any indication of our future revenue or revenue or payment growth.

In addition, we expect to continue to expend substantial financial and other resources on:

 

   

sales, marketing and customer success, including an expansion of our sales organization and new customer success initiatives;

 

   

our technology infrastructure, including systems architecture, scalability, availability, performance, and security;

 

   

product development, including investments in our product development team and the development of new products and new functionality for our AI-enabled platform;

 

   

acquisitions or strategic investments;

 

   

international expansion;

 

   

regulatory compliance and risk management; and

 

   

general administration, including increased legal and accounting expenses associated with being a public company.

These investments may not result in increased revenue growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, or if we encounter difficulties in managing a growing volume of payments, our business, financial position, and operating results will be harmed, and we may not be able to achieve or maintain profitability over the long term.

Our risk management efforts may not be effective to prevent fraudulent activities by our customers or their counterparties, which could expose us to material financial losses and liability and otherwise harm our business.

We offer software that digitizes and automates back-office financial operations for a large number of customers and executes payments to their vendors or from their clients. We are responsible for

 

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verifying the identity of our customers and their users, and monitoring transactions for fraud. We have been in the past and will continue to be targeted by parties who seek to commit acts of financial fraud using techniques such as stolen identities and bank accounts, compromised business email accounts, employee or insider fraud, account takeover, false applications, and check fraud. We may suffer losses from acts of financial fraud committed by our customers and their users, our employees or third-parties. For example, in 2016, an accounts payable customer fraudulently enrolled on our platform using a stolen business identity and bank account, and disbursed approximately $300,000 funded by an unauthorized bank account. While we were able to recover some of the funds, we incurred a loss of approximately $200,000 in connection with that incident. Also, in 2018, we processed payments on behalf of an accounts receivables customer, whose client made approximately $225,000 in payments to our customer with funds from stolen bank accounts. We were able to recover a portion of the funds but incurred a loss of approximately $75,000 in connection with that incident.

The techniques used to perpetrate fraud on our platform are continually evolving, and we expend considerable resources to continue to monitor and combat them. In addition, when we introduce new products and functionality, or expand existing products, we may not be able to identify all risks created by the new products or functionality. Our risk management policies, procedures, techniques, and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we have identified, or to identify additional risks to which we may become subject in the future. Furthermore, our risk management policies, procedures, techniques, and processes may contain errors or our employees or agents may commit mistakes or errors in judgment as a result of which we may suffer large financial losses. The software-driven and highly automated nature of our platform could enable criminals and those committing fraud to steal significant amounts of money from businesses like ours. As greater numbers of customers use our platform, our exposure to material risk losses from a single customer, or from a small number of customers, will increase.

Our current business and anticipated domestic and international growth will continue to place significant demands on our risk management efforts, and we will need to continue developing and improving our existing risk management infrastructure, policies, procedures, techniques, and processes. As techniques used to perpetrate fraud on our platform evolve, we may need to modify our products or services to mitigate fraud risks. As our business grows and becomes more complex, we may be less able to forecast and carry appropriate reserves in our books for fraud related losses. Further, these types of fraudulent activities on our platform can also expose us to civil and criminal liability, governmental and regulatory sanctions as well as potentially cause us to be in breach of our contractual obligations to our third-party partners.

We transfer large sums of customer funds daily, and are subject to the risk of errors, which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results.

For fiscal 2019, over 76,000 customers processed over $70 billion in Total Payment Volume on our platform. During the three months ended September 30, 2019, over 81,000 customers processed nearly $22 billion in Total Payment Volume on our platform. We have grown rapidly and seek to continue to grow, and although we maintain a robust and multi-faceted risk management process, our business is always subject to the risk of financial losses as a result of credit losses, operational errors, software defects, service disruption, employee misconduct, security breaches, or other similar actions or errors on our platform. As a provider of accounts payable, accounts receivable, and payment solutions, we collect and transfer funds on behalf of our customers. Software errors in our platform and operational errors by our employees may also expose us to losses.

Moreover, our trustworthiness and reputation are fundamental to our business. As a provider of cloud-based software for complex back-office financial operations, the occurrence of any credit losses,

 

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operational errors, software defects, service disruption, employee misconduct, security breaches, or other similar actions or errors on our platform could result in financial losses to our business and our customers, loss of trust, damage to our reputation, or termination of our agreements with strategic partners and accountants, each of which could result in:

 

   

loss of customers;

 

   

lost or delayed market acceptance and sales of our platform;

 

   

legal claims against us, including warranty and service level agreement claims;

 

   

regulatory enforcement action; or

 

   

diversion of our resources, including through increased service expenses or financial concessions, and increased insurance costs.

Although our terms of service allocate to our customers the risk of loss resulting from our customers’ errors, omissions, employee fraud, or other fraudulent activity related to their systems, in some instances we may cover such losses for efficiency or to prevent damage to our reputation. Although we maintain insurance to cover losses resulting from our errors and omissions, there can be no assurance that our insurance will cover all losses or our coverage will be sufficient to cover our losses. If we suffer significant losses or reputational harm as a result, our business, operating results, and financial condition could be adversely affected.

Customer funds that we hold in trust are subject to market, interest rate, foreign exchange, and liquidity risks, as well as general political and economic conditions. The loss of these funds could have a material adverse effect on our business, financial condition, and results of operations.

We invest funds that we hold in trust for our customers, including funds being remitted to suppliers, in highly liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our customer fund assets are subject to general market, interest rate, credit, foreign exchange, and liquidity risks. These risks may be exacerbated, individually or in aggregate, during periods of heavy financial market volatility. In the event of a global financial crisis, such as that experienced in 2008, employment levels and interest rates may decrease with a corresponding impact on our business. As a result, we could be faced with a severe constriction of the availability of liquidity, which could impact our ability to fulfill our obligations to move customer money to its intended recipient. Additionally, we rely upon certain banking partners and third parties to originate ACH payments, process checks, execute wire transfers, and issue virtual cards, which could be similarly affected by a liquidity shortage and further exacerbate our ability to operate our business. Any loss of or inability to access customer funds could have an adverse impact on our cash position and results of operations, could require us to obtain additional sources of liquidity, and could have a material adverse effect on our business, financial condition, and results of operations.

We are licensed as a money transmitter in all required U.S. states. In certain jurisdictions where we operate, we are required to hold eligible liquid assets, as defined by the relevant regulators in each jurisdiction, equal to at least 100% of the aggregate amount of all customer balances. Our ability to manage and accurately account for the assets underlying our customer funds and comply with applicable liquid asset requirements requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we will need to scale our associated internal controls. Our success requires significant public confidence in our ability to properly manage our customers’ balances and handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to accurately manage our customer funds and the assets underlying our customer funds in compliance with applicable regulatory requirements could

 

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result in reputational harm, lead customers to discontinue or reduce their use of our products, and result in significant penalties and fines, possibly including the loss of our state money transmitter licenses, which would materially harm our business.

We earn revenue from interest earned on customer funds held in trust while payments are clearing, which is subject to market conditions and may decrease as customers’ adoption of electronic payments and technology continues to evolve.

For fiscal 2018 and 2019, we generated $7.9 million and $22.4 million, respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing, or approximately 12% and 21% of our total revenue for such periods. For the three months ended September 30, 2018 and 2019, we generated $4.3 million and $6.6 million, respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing, or approximately 19% of our total revenue for both such periods. While these payments are clearing, we deposit the funds in highly liquid short-term investments, and generate revenue that is correlated to the federal funds rate. When interest rates decrease, the amount of revenue we generate from these investments decreases. Additionally, because we process electronic payments faster than checks, we hold customer funds for a shorter time and consequently, earn less revenue. If our customers transition from checks to electronic payments faster than we anticipate, or to new, faster payment rails like The Clearing House’s Real Time Payments Network, our revenue could decrease and our financial results could be adversely affected.

If we are unable to attract new customers or convert trial customers into paying customers, our revenue growth and operating results will be adversely affected.

To increase our revenue, we must continue to attract new customers and increase sales to those customers. As our market matures, product and service offerings evolve, and competitors introduce lower cost or differentiated products or services that are perceived to compete with our platform, our ability to sell subscriptions could be impaired. Similarly, our subscription sales could be adversely affected if customers or users perceive that features incorporated into alternative products reduce the need for our platform or if they prefer to purchase products that are bundled with solutions offered by other companies. Further, in an effort to attract new customers, we may offer simpler, lower-priced products, which may reduce our profitability.

We rely upon our marketing strategy of offering risk-free trials of our platform and other inbound, digital marketing strategies to generate sales opportunities. Many of our customers start a risk-free trial of our service. Converting these trial customers to paid customers often requires extensive follow-up and engagement. Many prospective customers never convert from the trial version of a product to a paid version of a product. Further, we often depend on individuals within an organization who initiate the trial versions of our products being able to convince decision makers within their organization to convert to a paid version. To the extent that these users do not become, or are unable to convince others to become, paying customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our revenue will be adversely affected. As a result of these and other factors, we may be unable to attract new customers, which would have an adverse effect on our business, revenue, gross margins, and operating results.

If we are unable to retain our current customers or sell additional functionality and services to them, our revenue growth will be adversely affected.

To increase our revenue, in addition to acquiring new customers, we must continue to retain existing customers and convince them to expand their use of our platform by increasing the number of users and incenting them to pay for additional functionality. Our ability to retain our customers and

 

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increase their usage could be impaired for a variety of reasons, including customer reaction to changes in the pricing of our products or the other risks described in this prospectus. As a result, we may be unable to retain existing customers or increase the usage of our platform by them, which would have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly, on the trading price of our common stock.

Our ability to sell additional functionality to our existing customers may require more sophisticated and costly sales efforts, especially for our larger customers with more senior management and established procurement functions. Similarly, the rate at which our customers purchase additional products from us depends on several factors, including general economic conditions and the pricing of additional product functionality. If our efforts to sell additional functionality to our customers are not successful, our business and growth prospects would suffer.

While some of our contracts are non-cancelable annual subscription contracts, most of our contracts with customers and accounting firms primarily consist of open-ended arrangements that can be terminated by either party without penalty at any time. Our customers have no obligation to renew their subscriptions for our platform after the expiration of their subscription period. For us to maintain or improve our operating results, it is important that our customers continue to maintain their subscriptions on the same or more favorable terms. We cannot accurately predict renewal or expansion rates given the diversity of our customer base in terms of size, industry, and geography. Our renewal and expansion rates may decline or fluctuate as a result of several factors, including customer spending levels, customer satisfaction with our platform, decreases in the number of users, changes in the type and size of our customers, pricing changes, competitive conditions, the acquisition of our customers by other companies, and general economic conditions. If our customers do not renew their subscriptions, or if they reduce their usage of our platform, our revenue and other operating results will decline and our business will suffer. If our renewal or expansion rates fall significantly below the expectations of the public market, securities analysts, or investors, the trading price of our common stock would likely decline.

Our business depends, in part, on our relationships with accounting firms.

Our relationships with our over 4,000 accounting firm partners account for approximately 54% of our total customers and 45% of our revenue as of and for fiscal 2019. We market and sell our products and services through accounting firms. We also have a partnership with CPA.com to market our products and services to accounting firms, which then enroll their customers directly onto our platform. Although our relationships with accounting firms are independent of one another, if our reputation in the accounting industry more broadly were to suffer, or if we were unable to establish relationships with new accounting firms and grow our relationships with existing accounting firm partners, our growth prospects would weaken and our business, financial position, and operating results may be adversely affected.

Our business depends, in part, on our strategic partnerships with financial institutions.

To grow our business, we will seek to expand our relationships with our financial institution partners and to partner with additional banks and financial institutions. Establishing our strategic partner relationships, particularly with our financial institution customers and, to a lesser extent, accounting software providers, entails extensive and highly specific upfront sales efforts, with little predictability and various ancillary requirements. For example, our financial institution partners generally require us to submit to an exhaustive security audit, given the sensitivity and importance of storing their customer billing and payment data on our platform. As a result, sales to new strategic partner enterprises involve risks that may not be present or that are present to a lesser extent with sales to SMB organizations. With strategic partners, the decision to subscribe to our platform

 

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frequently requires the approval of multiple management personnel and more technical personnel than would be typical of a smaller organization. Accordingly, sales to strategic partners may require us to invest more time educating and selling to these potential customers. Purchases by strategic partners are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, including considerable efforts to negotiate and document relationships with them. Further, we integrate our platform with our financial institution partners’ own websites and apps, which requires significant time and resources to design and deploy even after sales have been processed and documented. If we are unable to increase sales of our platform to strategic partners and manage the costs associated with marketing our platform to such customers and integrating with their systems, our business, financial position, and operating results may be adversely affected.

We may not be able to attract new financial institution strategic partners if our potential partners favor our competitors’ products or services over our platform or choose to compete with our products directly. Further, many of our existing financial institution partners have greater resources than we do and could choose to develop their own solutions to replace ours. Moreover, certain financial institutions may elect to focus on other market segments, and decide to terminate their SMB-focused services. For example, in late 2018, one of our former financial institution partners chose not to renew its relationship with us due to a change in business strategy. As a result, we lost approximately 5,000 customers. Although these customers did not represent a significant amount of revenue for our business, there can be no guarantee that other financial institution partners will not choose to terminate their relationships for strategic or other reasons. If we are unsuccessful in establishing, growing, or maintaining our relationships with strategic partners, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer.

Our business depends, in part, on our relationship with Intuit.

In addition to our relationship with financial institutions, we rely on our strategic relationship with Intuit Inc., a leading provider of financial, accounting, and tax preparation software, to further expand our business. Our platform is integrated into Intuit’s QuickBooks product, which millions of SMBs rely on for accounting services. Achieving this integration required extensive coordination and commitment of time and resources, and has led to thousands of additional customers for us. If we are unable to increase adoption of our platform by Intuit’s customers, however, our growth prospects may be adversely affected. Additionally, if Intuit reconfigures its platform in a manner that no longer supports our integration or if Intuit terminates this relationship or replaces our platform with that of another provider, we would lose customers and our business would be adversely affected. Finally, Intuit may seek to develop a solution of its own, acquire a solution to compete with ours, thereby or decide to partner with a competitor and build a new product, which its SMB customers may select over ours, thereby harming our growth prospects and adversely affecting our results of operations.

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

The market for financial back-office solutions is fragmented, competitive, and constantly evolving. Our competitors range from large entities that predominantly focus on enterprise resource planning solutions, to smaller niche suppliers of solutions that focus exclusively on document management, workflow management, accounts payable, accounts receivable, and/or electronic bill presentment and payment. With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward. Our competitors that currently focus on enterprise solutions may offer products to SMBs that compete with ours. Accounting software providers, such as Intuit, as well as the financial institutions with which we partner, may internally develop products, acquire existing, third-party products, or may enter into partnerships or other strategic relationships that would enable them to expand their product offerings to compete with our

 

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platform or provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us. These software providers and financial institutions may have the operating flexibility to bundle competing solutions with other offerings, including offering them at a lower price or for no additional cost to customers as part of a larger sale. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. As we look to market and sell our platform to potential customers or strategic partners with existing solutions, we must convince their internal stakeholders that our platform is superior to their current solutions.

We compete on several factors, including:

 

   

product features, quality, and functionality;

 

   

data asset size and ability to leverage artificial intelligence to grow faster and smarter;

 

   

ease of deployment;

 

   

ease of integration with leading accounting and banking technology infrastructures;

 

   

ability to automate processes;

 

   

cloud-based delivery architecture;

 

   

advanced security and control features;

 

   

regulatory compliance leadership, as evidenced by money transmitter licenses in all required US jurisdictions;

 

   

brand recognition; and

 

   

pricing and total cost of ownership.

Our competitors vary in size, breadth, and scope of the products and services offered. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets, and greater resources than us. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. For example, an existing competitor or new entrant could introduce new technology that reduces demand for our platform.

For these reasons, we may not be able to compete successfully against our current or future competitors, and this competition could result in the failure of our platform to continue to achieve or maintain market acceptance, any of which would harm our business, operating results, and financial condition.

If we do not or cannot maintain the compatibility of our platform with popular accounting software solutions or offerings of our strategic partners, our revenue and growth prospects will decline.

To deliver a comprehensive solution, our platform integrates with popular accounting software providers including Intuit QuickBooks, Oracle NetSuite, and Sage Intacct, through application program interfaces (APIs) made available by these software providers. We automatically synchronize customers, suppliers, clients, invoices, and payment transactions between our platform and these systems. This two-way sync eliminates duplicate data entry and provides the basis for managing cash-flow through an integrated solution for accounts payables, accounts receivable, and payments.

If any of the accounting software providers change the features of their APIs, discontinue their support of such APIs, restrict our access to their APIs, or alter the terms governing their use in a

 

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manner that is adverse to our business, we will not be able to provide synchronization capabilities, which could significantly diminish the value of our platform and harm our business, operating results, and financial condition.

The functionality and popularity of our platform depends, in part, on our ability to integrate our platform with the offerings of our strategic partners. Critically, our financial institution strategic partners must be able to integrate our platform into their existing offerings. These strategic partners periodically update and change their systems, and although we have been able to adapt our platform to their evolving needs in the past, there can be no guarantee that we will be able to do so in the future. In particular, if we are unable to adapt to the needs of our strategic partners’ platforms, our strategic partners may terminate their agreements with us and we may lose access to large numbers of customers as a result.

We depend upon several third-party service providers for processing our transactions. If any of our agreements with our processing providers are terminated, we could experience service interruptions.

We depend on banks, including JPMorgan Chase, The Bancorp Bank, and Silicon Valley Bank, to process ACH transactions and checks for our customers. We have entered into treasury services or similar agreements with these banks for payment processing and related services. Those agreements include significant security, compliance, and operational obligations. If we are not able to comply with those obligations or our agreements with the processing banks are terminated for any reason, we could experience service interruptions as well as delays and additional expenses in arranging new services.

Similarly, we have an agreement with Cambridge Mercantile Corp., under which Cambridge provides us with cross-border wire transfer capabilities. This arrangement has enabled us to offer our cross-border payments service, which we view as a significant growth opportunity for our business. Finally, we have an agreement with Comdata Inc., under which Comdata acts as our program manager and card issuer processor for our virtual card program.

If any of our banking agreements related to ACH transactions or checks, or our agreements with Cambridge or Comdata are terminated, we may experience business interruptions and delays, and be forced to incur additional expenses, potentially interfering with our existing customer relationships or making us less attractive to potential new customers.

Interruptions or delays in the services provided by AWS or other third-party data centers or internet service providers could impair the delivery of our platform and our business could suffer.

We host our platform using third-party cloud infrastructure services, including co-location facilities at Equinix, Iron Mountain, and Digital West. We also use public cloud hosting with Amazon Web Services (AWS). All of our products utilize resources operated by us through these providers. We therefore depend on our third-party cloud providers’ ability to protect their data centers against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. Our operations depend on protecting the cloud infrastructure hosted by such providers by maintaining their respective configuration, architecture, and interconnection specifications, as well as the information stored in these virtual data centers and transmitted by third-party internet service providers. We have periodically experienced service disruptions in the past, and we cannot assure you that we will not experience interruptions or delays in our service in the future. 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 data storage services we use. Although we have disaster recovery plans

 

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that utilize multiple data storage locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters, military actions, terrorist attacks, negligence, and other similar events beyond our control could negatively affect our platform. Any prolonged 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. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur.

Our platform is accessed by many customers, often at the same time. As we continue to expand the number of our customers and products available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of data centers, internet service providers, or other third-party service providers to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to grow our business and scale our operations. If our third-party infrastructure service agreements are terminated, or there is a lapse of service, interruption of internet service provider connectivity, or damage to data centers, we could experience interruptions in access to our platform as well as delays and additional expense in arranging new facilities and services

Moreover, we are in the process of gradually migrating our systems from internal data centers and smaller vendors to AWS. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. We have a limited history of operating on AWS. As we migrate our data from our servers to AWS’ servers, we may experience some duplication and incur additional costs. If our data migration is not successful, or if AWS unexpectedly terminates our agreement, we would be forced to incur additional expenses to locate an alternative provider and may experience outages or disruptions to our service. Any service disruption affecting our platform during such migration or while operating on the AWS cloud infrastructure could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business.

We operate in an emerging and evolving market, which may develop more slowly or differently than we expect. If our market does not grow as we expect, or if we cannot expand our platform to meet the demands of this market, our revenue may decline or fail to grow, and we may incur additional operating losses.

Our primary competition remains the legacy manual processes that SMBs have relied on for generations. Our success will depend, to a substantial extent, on the widespread adoption of our cloud-based back-office solutions as an alternative to existing solutions or adoption by customers that are not using any such solutions at all. Some organizations may be reluctant or unwilling to use our platform for several reasons, including concerns about additional costs, uncertainty regarding the reliability and security of cloud-based offerings, or lack of awareness of the benefits of our platform. Our ability to expand sales of our platform depends on several factors, including prospective customers’ awareness of our platform, the timely completion, introduction, and market acceptance of enhancements to our platform or new products that we may introduce, the effectiveness of our marketing programs, the costs of our platform, and the success of our competitors. If we are unsuccessful in developing and marketing our platform, or if organizations do not perceive or value the benefits of our platform as an alternative to legacy systems, the market for our platform may not continue to develop or may develop more slowly than we expect, either of which would harm our growth prospects and operating results.

 

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Payments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business.

The local, state, and federal laws, rules, regulations, licensing schemes, and industry standards that govern our business include, or may in the future include, those relating to banking, deposit-taking, cross-border and domestic money transmission, foreign exchange, payments services (such as money transmission, payment processing, and settlement services), anti-money laundering, combating terrorist financing, escheatment, international sanctions regimes, and compliance with the Payment Card Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data. We do not directly collect or store payment card information; instead, we rely on a third-party payment processor to do so. These laws, rules, regulations, licensing schemes, and standards are enforced by multiple authorities and governing bodies in the United States, including the Department of the Treasury, the Federal Deposit Insurance Corporation, the SEC, self-regulatory organizations, and numerous state and local agencies. As we expand into new jurisdictions, the number of foreign laws, rules, regulations, licensing schemes, and standards governing our business will expand as well. In addition, as our business and products continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing schemes, and standards. We may not always be able to accurately predict the scope or applicability of certain laws, rules, regulations, licensing schemes, or standards to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.

Our subsidiary, Bill.com, LLC, has obtained licenses or made registrations, as applicable, to operate as a money transmitter (or its equivalent) in the United States, in the District of Columbia, and, to the best of our knowledge, in all the states where such licensure or registration is required for our business. As a licensed money transmitter, we are subject to obligations and restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, minimum capital requirements, and inspection by state regulatory agencies concerning various aspects of our business. Evaluation of our compliance efforts, as well as the questions of whether and to what extent our products and services are considered money transmission, are matters of regulatory interpretation and could change over time. In the past, regulators have identified violations and we have been subject to fines and other penalties by regulatory authorities due to their interpretations and applications to our business of their respective state money transmission laws. Regulators and third-party auditors have also identified gaps in our anti-money laundering program. In the future, as a result of the regulations applicable to our business, we could be subject to investigations and resulting liability, including governmental fines, restrictions on our business, or other sanctions, and we could be forced to cease conducting certain aspects of our business with residents of certain jurisdictions, be forced to change our business practices in certain jurisdictions, or be required to obtain additional licenses or regulatory approvals. There can be no assurance that we will be able to obtain or maintain any such licenses, and, even if we were able to do so, there could be substantial costs and potential product changes involved in maintaining such licenses, which could have a material and adverse effect on our business. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines or other enforcement action if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses. These factors could impose substantial additional costs, involve considerable delay to the development or provision of our products or services, require significant and costly operational changes, or prevent us from providing our products or services in any given market.

 

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Government agencies may impose new or additional rules on money transmission, including regulations that:

 

   

prohibit, restrict, and/or impose taxes or fees on money transmission transactions in, to or from certain countries or with certain governments, individuals, and entities;

 

   

impose additional customer identification and customer due diligence requirements;

 

   

impose additional reporting or recordkeeping requirements, or require enhanced transaction monitoring;

 

   

limit the types of entities capable of providing money transmission services, or impose additional licensing or registration requirements;

 

   

impose minimum capital or other financial requirements;

 

   

limit or restrict the revenue that may be generated from money transmission, including revenue from interest earned on customer funds, transaction fees, and revenue derived from foreign exchange;

 

   

require enhanced disclosures to our money transmission customers;

 

   

require the principal amount of money transmission originated in a country to be invested in that country or held in trust until paid;

 

   

limit the number or principal amount of money transmission transactions that may be sent to or from a jurisdiction, whether by an individual or in the aggregate; and

 

   

restrict or limit our ability to process transactions using centralized databases, for example, by requiring that transactions be processed using a database maintained in a particular country or region.

If we lose our founder or key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business may be harmed.

Our success and future growth depend upon the continued services of our management team and other key employees. Our founder and Chief Executive Officer, René Lacerte, is critical to our overall management, as well as the continued development of our products, strategic partnerships, our culture, our relationships with accounting firms, and our strategic direction. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees. Certain of our key employees have been with us for a long period of time and have fully vested stock options or other long-term equity incentives that may become valuable and will be publicly tradable if we become a public company. The loss of our founder, or one or more of our senior management, or other key employees could harm our business, and we may not be able to find adequate replacements. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees or that we would be able to timely replace members of our senior management or other key employees should any of them depart.

If we fail to offer high-quality customer support, or if our support is more expensive than anticipated, our business and reputation could suffer.

Our customers rely on our customer support services, which we refer to as customer success, to resolve issues and realize the full benefits provided by our platform. High-quality support is also important for the renewal and expansion of our subscriptions with existing customers. We primarily

 

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provide customer support over chat and email, with limited phone-based support. If we do not help our customers quickly resolve issues and provide effective ongoing support, or if our support personnel or methods of providing support are insufficient to meet the needs of our customers, our ability to retain customers, increase adoption by our existing customers and acquire new customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not able to meet the customer support needs of our customers by chat and email during the hours that we currently provide support, we may need to increase our support coverage and provide additional phone-based support, which may reduce our profitability.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing business needs, requirements, or preferences, our products may become less competitive.

The market for SMB financial back-office solutions is relatively new and subject to ongoing technological change, evolving industry standards, payment methods and changing regulations, and changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis, including launching new products and services. The success of any new product and service, or any enhancements or modifications to existing products and services, depends on several factors, including the timely completion, introduction, and market acceptance of such products and services, enhancements, and modifications. If we are unable to enhance our platform, add new payment methods or develop new products that keep pace with technological and regulatory change and achieve market acceptance, or if new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently, or more securely than our products, our business, operating results, and financial condition would be adversely affected. Furthermore, modifications to our existing platform or technology will increase our research and development expenses. Any failure of our services to operate effectively with existing or future network platforms and technologies could reduce the demand for our services, result in customer dissatisfaction and adversely affect our business.

If the prices we charge for our services are unacceptable to our customers, our operating results will be harmed.

We generate revenue by charging customers a fixed monthly rate per user for subscriptions as well as transaction fees. As the market for our platform matures, or as new or existing competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new customers at prices that are consistent with our pricing model and operating budget. Our pricing strategy for new products we introduce, including our virtual card and cross-border payment products, may prove to be unappealing to our customers, and our competitors could choose to bundle certain products and services competitive with ours. If this were to occur, it is possible that we would have to change our pricing strategies or reduce our prices, which could harm our revenue, gross profits, and operating results.

We typically provide service level commitments under our strategic partner agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenue.

Our agreements with our strategic partners typically contain service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these partners with service credits, up to 10% of the partner’s subscription fees for the month in which the service

 

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level was not met. In addition, we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenue could be significantly affected if we suffer unexcused downtime under our agreements with our partners. Further, any extended service outages could adversely affect our reputation, revenue, and operating results.

We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if we are not able to grow efficiently, our operating results could be harmed.

As usage of our platform grows and we sign additional strategic partners, we will need to devote additional resources to improving and maintaining our infrastructure and computer network and integrating with third-party applications to maintain the performance of our platform. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support, risk and compliance operations, and professional services, to serve our growing customer base.

Any failure of or delay in these efforts could result in service interruptions, impaired system performance, and reduced customer satisfaction, resulting in decreased sales to new customers, lower subscription renewal rates by existing customers, the issuance of service credits, or requested refunds, all of which could hurt our revenue growth. If sustained or repeated, these performance issues could reduce the attractiveness of our platform to customers and could result in lost customer opportunities and lower renewal rates, any of which could hurt our revenue growth, customer loyalty, and our reputation. Even if we are successful in these efforts to scale our business, they will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could adversely affect our business, operating results, and financial condition.

The failure to attract and retain additional qualified personnel and any restrictions on the movement of personnel could prevent us from executing our business strategy and growth plans.

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for executive officers, software developers, compliance and risk management personnel and other key employees in our industry and location is intense and increasing. We compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software and payment systems, as well as for skilled legal and compliance and risk operations professionals. The current regulatory environment related to immigration may increase the likelihood that immigration laws may be modified to further limit the availability of H1-B and other visas. If a new or revised visa program is implemented, it may impact our ability to recruit, hire, retain or effectively collaborate with qualified skilled personnel, including in the areas of artificial intelligence and machine learning, and payment systems and risk management, which could adversely impact our business, operating results and financial condition. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. If we fail to identify, attract, develop and integrate new personnel, or fail to retain and motivate our current personnel, our growth prospects would be adversely affected.

 

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

Our ability to increase our customer base and achieve broader market acceptance of our platform will depend to a significant extent on our ability to expand our sales and marketing organizations, and to deploy our sales and marketing resources efficiently. We plan to continue expanding our direct-to-SMB sales force as well as our sales force focused on identifying new strategic partners. We also dedicate significant resources to sales and marketing programs, including digital advertising through services such as Google AdWords. The effectiveness and cost of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, and changes in the search algorithms used by major search engines. These efforts will require us to invest significant financial and other resources. Our business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs and advertising are not effective.

We are subject to governmental regulation and other legal obligations, particularly those related to privacy, data protection, and information security, and our actual or perceived failure to comply with such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse publicity and reputational damage that may negatively affect the value of our business and decrease the price of our common stock. Compliance with such laws could also result in additional costs and liabilities to us or inhibit sales of our products.

Our customers, their suppliers, customers and other users store personal and business information, financial information and other sensitive information on our platform. In addition, we receive, store, and process personal and business information and other data from and about actual and prospective customers and users, in addition to our employees and service providers. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the U.S. Federal Trade Commission (FTC), and various state, local, and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.

The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use, and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising, and other communications with individuals and businesses. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Gramm Leach Bliley Act, and state laws relating to privacy and data security. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. For example, in June 2018, California enacted the California Consumer Privacy Act, which becomes operative on January 1, 2020 and will broadly define personal information, give California residents expanded privacy rights and protections, and provide for civil penalties for violations and a private right of action for data breaches. Many aspects of the California Consumer Privacy Act and its interpretation remain unclear, and its full impact on our business and operations remains uncertain. The laws and regulations relating to privacy and data security are evolving, can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

In addition, several foreign countries and governmental bodies, including the European Union, have laws and regulations dealing with the handling and processing of personal information obtained

 

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from their residents, which in certain cases 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 various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and in some jurisdictions, Internet Protocol (IP) addresses. While we believe that the products and services that we currently offer do not subject us to such laws or regulations in foreign jurisdictions, such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future.

Within the European Union, the General Data Protection Regulation (GDPR), significantly increases the level of sanctions for non-compliance from those in existing EU data protection law and imposes direct obligations on data processors in addition to data controllers. EU data protection authorities have the power to impose administrative fines for violations of the GDPR of up to a maximum of 20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding fiscal year, whichever is higher, and violations of the GDPR may also lead to damages claims by data controllers and data subjects. Such penalties are in addition to any civil litigation claims by data controllers, customers, and data subjects. While we believe that the products and services that we currently offer do not subject us to the GDPR, the GDPR and other laws and regulations relating to privacy, data protection, and information security may be modified or subject to new or different interpretations or may be modified in the future, or modifications or enhancements that we make to our products may subject us to GDPR, or we otherwise may become, or have it asserted that we are, subject to the GDPR or other laws or regulations relating to privacy, data protection, or information security. If we are, or are asserted to be, subject to the GDPR, we may need to take steps to cause our processes to be compliant with applicable portions of the GDPR, but we cannot assure you that we will be able to implement changes in a timely manner or without significant disruption to our business, or that such steps will be effective, and we may face the risk of liability under the GDPR.

The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. As a result of the laws that are or may be applicable to us, and due to the sensitive nature of the information we collect, we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, or unauthorized access. If our policies, procedures, or measures relating to privacy, data protection, marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties, and negative publicity, and could cause our application providers, customers and partners to lose trust in us, and have an adverse effect on our business, operating results, and financial condition.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may apply to us. Because the interpretation and application of privacy and data protection laws, regulations, rules, and other standards are still uncertain, it is possible that these laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the functionality of our platform. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business.

 

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Any failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties, or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data protection, marketing, consumer communications, and information security, and we cannot determine the impact such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new functionality and maintain and grow our customer base and increase revenue. Future restrictions on the collection, use, sharing, or disclosure of data, or additional requirements for express or implied consent of our customers, partners, or end users for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a material manner, and could limit our ability to develop new functionality.

If we are not able to comply with these laws or regulations, or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products, which would negatively affect our business, financial condition, and operating results. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business. Furthermore, any costs incurred as a result of this potential liability could harm our operating results.

We, our strategic partners, our customers, and others who use our services obtain and process a large amount of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to such data could harm our reputation as a trusted brand, as well as have a material adverse effect on our business.

We, our strategic partners, our customers, and the third-party vendors and data centers that we use, obtain and process large amounts of sensitive data, including data related to our customers and their transactions, as well as other data of the counterparties to their payments. We face risks, including to our reputation as a trusted brand, in the handling and protection of this data, and these risks will increase as our business continues to expand to include new products and technologies.

Cybersecurity incidents and malicious internet-based activity continue to increase generally, and providers of cloud-based services have frequently been targeted by such attacks. These cybersecurity challenges, including threats to our own IT infrastructure or those of our customers or third-party providers, may take a variety of forms ranging from stolen bank accounts, business email compromise, customer employee fraud, account takeover, check fraud or cybersecurity attacks, to “mega breaches” targeted against cloud-based services and other hosted software, which could be initiated by individual or groups of hackers or sophisticated cyber criminals. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. We have in the past experienced cybersecurity incidents of limited scale. We may be unable to anticipate or prevent techniques used in the future to obtain unauthorized access or to sabotage systems because they change frequently and often are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to our sensitive corporate information or our customers’ data.

We have administrative, technical, and physical security measures in place, and we have policies and procedures in place to contractually require service providers to whom we disclose data to

 

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implement and maintain reasonable privacy and security measures. However, if our privacy protection or security measures or those of the previously mentioned third parties are inadequate or are breached as a result of third-party action, employee or contractor error, malfeasance, malware, phishing, hacking attacks, system error, software bugs or defects in our products, trickery, process failure, or otherwise, and, as a result, there is improper disclosure of, or someone obtains unauthorized access to or exfiltrates funds or sensitive information, including personally identifiable information, on our systems or our partners’ systems, or if we suffer a ransomware or advanced persistent threat attack, or if any of the foregoing is reported or perceived to have occurred, our reputation and business could be damaged. Recent high-profile security breaches and related disclosures of sensitive data by large institutions suggest that the risk of such events is significant, even if privacy protection and security measures are implemented and enforced. If sensitive information is lost or improperly disclosed or threatened to be disclosed, we could incur significant costs associated with remediation and the implementation of additional security measures, and may incur significant liability and financial loss, and be subject to regulatory scrutiny, investigations, proceedings, and penalties.

In addition, our financial institution strategic partners conduct regular audits of our cybersecurity program, and if any of them were to conclude that our systems and procedures are insufficiently rigorous, they could terminate their relationships with us, and our financial results and business could be adversely affected. Under our terms of service and our contracts with strategic partners, if there is a breach of payment information that we store, we could be liable to the partner for their losses and related expenses. Additionally, if our own confidential business information were improperly disclosed, our business could be materially and adversely affected. A core aspect of our business is the reliability and security of our platform. Any perceived or actual breach of security, regardless of how it occurs or the extent of the breach, could have a significant impact on our reputation as a trusted brand, cause us to lose existing partners or other customers, prevent us from obtaining new partners and other customers, require us to expend significant funds to remedy problems caused by breaches and implement measures to prevent further breaches, and expose us to legal risk and potential liability including those resulting from governmental or regulatory investigations, class action litigation, and costs associated with remediation, such as fraud monitoring and forensics. Any actual or perceived security breach at a company providing services to us or our customers could have similar effects.

While we maintain cybersecurity insurance, our insurance may be insufficient or may not cover all liabilities incurred by such attacks. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We currently handle cross-border payments and plan to expand our offering to new customers and to make payments to new countries, creating a variety of operational challenges.

A component of our growth strategy involves our cross-border payments product and, ultimately, expanding our operations internationally. Although we do not currently serve customers outside the United States, starting in 2018 we introduced cross-border payments through our relationship with Cambridge Mercantile, and now offer our United States-based customers the ability to disburse funds to over 130 countries. We are continuing to adapt to and develop strategies to address payments to new countries. However, there is no guarantee that such efforts will have the desired effect.

 

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Our cross-border payments product and international operations strategy involve a variety of risks, including:

 

   

changes in financial regulations and our ability to comply and obtain any relevant licenses;

 

   

currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions;

 

   

reduction in cross-border trade resulting from trade sanctions, other trade regulations, and relations;

 

   

potential application of more stringent regulations relating to privacy, data protection, and data security, and the authorized use of, or access to, commercial and personal information;

 

   

potential changes in trade relations, regulations, or laws;

 

   

exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act (FCPA), U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions; and

 

   

unexpected changes in tax laws.

If we invest substantial time and resources to further expand our cross-border payments offering and are unable to do so successfully and in a timely manner, our business and operating results may suffer.

Future acquisitions, strategic investments, partnerships, collaborations, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our operating results and financial condition.

We may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, 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 such acquisitions are completed. In addition, we have no experience in acquiring other businesses, and we may not successfully identify desirable acquisition targets, or if we acquire additional businesses, we may not be able to integrate them effectively following the acquisition. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, as well as unfavorable accounting treatment and exposure to claims and disputes by third parties, including intellectual property claims. We also may not generate sufficient financial returns to offset the costs and expenses related to any acquisitions. In addition, if an acquired business fails to meet our expectations, our business, operating results, and financial condition may suffer.

We use open source software in our products, which could subject us to litigation or other actions.

We use open source software in our products. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate it into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition, or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner under certain open source licenses, we could be required to release the source code of our proprietary software products. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products, discontinue the sale of such products, or take other remedial actions.

 

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If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, operating results, and financial condition may suffer.

We believe that maintaining and enhancing the Bill.com brand is important to support the marketing and sale of our existing and future products to new customers and strategic partners and to expand sales of our platform to existing customers and strategic partners. Our ability to protect our brand is limited as a result of its descriptive nature. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing and demand generation efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and products, and our ability to successfully differentiate our platform and products from competitive products and services. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, our business could suffer.

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. While we have been issued patents in the United States and have additional patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours.

No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our platform.

We have been in the past, and may in the future be, subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.

We have been in the past and may in the future become subject to intellectual property disputes. Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot assure you that the results of any such actions will not have an adverse effect on our business, operating results, or financial condition.

The software industry is characterized by the existence of many patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights. Companies in the software industry are

 

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often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, our patents may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities related to such intellectual property. Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to our reputation and brand.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.

Our agreements with strategic partners and some larger customers include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our platform or other contractual obligations. Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, operating results, and financial condition. Although we normally limit our liability with respect to such obligations in our contracts with direct customers and with customers acquired through our accounting firm partners, we may still incur substantial liability, and we may be required to cease use of certain functions of our platform or products, as a result of IP-related claims. Any dispute with a customer with respect to these obligations could have adverse effects on our relationship with that customer and other existing or new customers, and harm our business and operating results. In addition, although we carry insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed, or otherwise protect us from liabilities or damages with respect to claims alleging compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.

Changes to payment card networks fees or rules could harm our business.

We are required to comply with Mastercard, American Express, and Visa payment card network operating rules in connection with our virtual card payments service and our subscription billing engine. We have agreed to reimburse our service providers for any fines they are assessed by payment card networks as a result of any rule violations by us. We may also be directly liable to the payment card networks for rule violations. The payment card networks set and interpret the card operating rules. The payment card networks could adopt new operating rules or interpret or reinterpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. We also may seek to introduce other card-related products in the future, which would entail additional operating rules. As a result of any violations of rules, new rules being implemented, or increased fees, we could lose our ability to make payments using virtual cards, or such payments could become prohibitively expensive for us or for our customers. If we are unable to make customer payments to vendors using virtual cards, our business would be adversely affected.

 

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Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.

Our success and increased visibility may result in increased regulatory oversight and enforcement and more restrictive rules and regulations that apply to our business. We are subject to a wide variety of local, state, federal, and international laws, rules, regulations, licensing schemes, and industry standards in the United States and in other countries in which we operate. These laws, rules, regulations, licensing schemes, and standards govern numerous areas that are important to our business. In addition to the payments and financial services-related regulations, and the privacy, data protection, and information security-related laws described elsewhere, our business is also subject to, without limitation, rules and regulations applicable to: securities, labor and employment, immigration, competition, and marketing and communications practices. Laws, rules, regulations, licensing schemes, and standards applicable to our business are subject to changes and evolving interpretations and application, including by means of legislative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions. We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business.

Although we have a compliance program focused on the laws, rules, regulations, licensing schemes, and industry standards that we have assessed as applicable to our business and we are continually investing more in this program, there can be no assurance that our employees or contractors will not violate such laws, rules, regulations, licensing schemes, and industry standards. Any failure or perceived failure to comply with existing or new laws, rules, regulations, licensing schemes, industry standards, or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, standards or orders), may:

 

   

subject us to significant fines, penalties, criminal and civil lawsuits, license suspension or revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, and enforcement actions in one or more jurisdictions levied by federal, state, local or foreign regulators, state attorneys general and private plaintiffs who may be acting as private attorneys general pursuant to various applicable federal, state, and local laws;

 

   

result in additional compliance and licensure requirements;

 

   

increase regulatory scrutiny of our business; and

 

   

restrict our operations and force us to change our business practices or compliance program, make product or operational changes, or delay planned product launches or improvements.

The complexity of U.S. federal and state regulatory and enforcement regimes, coupled with the scope of our international operations and the evolving regulatory environment, could result in a single event giving rise to many overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.

Any of the foregoing could, individually or in the aggregate, harm our reputation as a trusted provider, damage our brands and business, cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches, expose us to legal risk and potential liability, and adversely affect our results of operations and financial condition.

 

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We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.

We have funded our operations since inception primarily through equity financings, sales of subscriptions to our products, and usage-based transaction fees. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.

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

As of June 30, 2019, we had U.S. federal net operating loss (NOL) carryforwards of approximately $104.2 million and state net operating loss carryforwards of approximately $71.3 million. The federal and material state net operating loss carryforwards will begin to expire in 2026. As of June 30, 2019, we had U.S. federal research and development tax credit carryforwards of approximately $4.7 million and state research and development tax credit carryforwards of approximately $4.3 million. In general, under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes such as research tax credits to offset future taxable income. If it is determined that we have in the past experienced an ownership change, or if we undergo one or more ownership changes as a result of this offering or future transactions in our stock, then our ability to utilize NOLs and other pre-change tax attributes could be limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 or 383 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability.

The Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and significantly reforms the Code. The Tax Act, among other things, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards. For federal NOLs arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income. In addition, federal NOLs arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOL is expected to be utilized. The changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.

 

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We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offering and adversely affect our operating results.

The vast majority of states have considered or adopted laws that impose tax collection obligations on out-of-state companies. States where we have nexus may require us to calculate, collect, and remit taxes on sales in their jurisdiction. Additionally, the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et al (Wayfair) that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may enforce laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We may be obligated to collect and remit sales and use tax in states in which we have not collected and remitted sales and use tax. A successful assertion by one or more states requiring us to collect taxes where we historically have not or presently do not do so could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a perceived competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could adversely effect our business and operating results.

Changes in our effective tax rate or tax liability may adversely effect our operating results.

Our effective tax rate could increase due to several factors, including:

 

   

changes in the relative amounts of income before taxes in the various jurisdictions in which we operate due to differing statutory tax rates in various jurisdictions;

 

   

changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act;

 

   

changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;

 

   

the outcome of current and future tax audits, examinations, or administrative appeals; and

 

   

limitations or adverse findings regarding our ability to do business in some jurisdictions.

Any of these developments could adversely affect our operating results.

Natural catastrophic events and man-made problems such as power-disruptions, computer viruses, data security breaches, and terrorism may disrupt our business.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. We have a large employee presence in Palo Alto, California and a smaller presence in Houston, Texas, and our data centers are located in California and Arizona. The west coast of the United States contains active earthquake zones and the Houston area frequently experiences significant hurricanes. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, vandalism, cyber-attack, war, or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our products, breaches of data security, and loss of critical data, all of which could harm our business, operating results, and financial condition.

Additionally, as computer malware, viruses, and computer hacking, fraudulent use attempts, and phishing attacks have become more prevalent, we, and third parties upon which we rely, face

 

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increased risk in maintaining the performance, reliability, security, and availability of our solutions and related services and technical infrastructure to the satisfaction of our customers. Any computer malware, viruses, computer hacking, fraudulent use attempts, phishing attacks, or other data security breaches related to our network infrastructure or information technology systems or to computer hardware we lease from third parties, could, among other things, harm our reputation and our ability to retain existing customers and attract new customers.

In addition, the insurance we maintain may be insufficient to cover our losses resulting from disasters, cyber-attacks, or other business interruptions, and any incidents may result in loss of, or increased costs of, such insurance.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting, and if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and 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 (Exchange Act), the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange (NYSE), and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an emerging growth company. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. It may require significant resources and management oversight to maintain and, if necessary, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which would increase our costs and expenses. Furthermore, for fiscal 2018, we identified material weaknesses in our internal control over financial reporting relating to our financial statement close process and reconciliation of funds held for customers. While no material weaknesses were identified in fiscal 2019, our remediation efforts are still ongoing and there can be no assurance that we will not experience additional material weaknesses in the future.

As a public company, we will also be required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm

 

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will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We will be required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, including as a result of the material weakness described above, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

U.S. generally accepted accounting principles (GAAP) is subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported operating results and financial condition and could affect the reporting of transactions already completed before the announcement of a change.

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Operating Results—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, the valuation of the stock-based awards, including the determination of fair value of common stock, and the period of benefit for amortizing deferred commissions, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

 

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Any future litigation against us could be costly and time-consuming to defend.

In addition to intellectual property litigation, we have in the past and may in the future become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes, employment claims made by our current or former employees, or claims for reimbursement following misappropriation of customer data. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the trading price of our stock.

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

Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our platform and those of our competitors. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section titled “Industry and Market Data.”

We are subject to governmental laws and requirements regarding economic and trade sanctions, anti-money laundering, and counter-terror financing that could impair our ability to compete in international markets or subject us to criminal or civil liability if we violate them.

Although we currently only operate in the United States, in the future we will seek to expand internationally and will become subject to additional laws and regulations, and will need to implement new regulatory controls to comply with applicable laws. We are currently required to comply with U.S. economic and trade sanctions administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and we have processes in place to comply with the OFAC regulations as well as similar requirements in other jurisdictions. As part of our compliance efforts, we scan our customers against OFAC and other watchlists. While we offer services only to customers domiciled in the United States, our application could be accessed from anywhere in the world. If our service is accessed from a sanctioned country in violation of the trade and economic sanctions, we could be subject to fines or other enforcement action. We are also subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, our involvement in transferring the proceeds of criminal activities. In the United States, most of our services are subject to anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended (BSA), and similar laws and regulations. The BSA, among other things, requires money transmitters to develop and implement risk-based anti-money laundering programs, to report large cash transactions and

 

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suspicious activity, and in some cases, to collect and maintain information about customers who use their services and maintain other transaction records. Regulators in the United States and globally continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor transactions on our system, including payments to persons outside of the United States. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers, and any change in such thresholds could result in greater costs for compliance.

We are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business.

We are subject to the FCPA, U.S. domestic bribery laws, and other anti-corruption laws. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public sector. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. Although we currently only maintain operations in the United States, as we increase our international cross-border business and expand operations abroad, we may engage with business partners and third-party intermediaries to market our services and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.

We cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international business, our risks under these laws may increase.

Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties, injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas are received or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, operating results, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

Our Senior Secured Credit Facilities Credit Agreement provides our lender with a first-priority lien against substantially all of our assets, and contains financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

Our Senior Secured Credit Facilities Credit Agreement (Senior Facilities Agreement) restricts our ability to, among other things:

 

   

use our accounts receivable, inventory, trademarks, and most of our other assets as security in other borrowings or transactions, unless the value of the assets subject thereto does not exceed a certain threshold;

 

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incur additional indebtedness;

 

   

incur liens upon our property;

 

   

dispose of certain assets;

 

   

declare dividends or make certain distributions; and

 

   

undergo a merger or consolidation or other transactions.

Our Senior Facilities Agreement also prohibits us during certain covered time periods from allowing Net Revenue (as defined in the Senior Facilities Agreement) for any fiscal quarter to be less than prescribed minimums. Our ability to comply with this and other covenants is dependent upon several factors, some of which are beyond our control.

Our failure to comply with the covenants or payment requirements, or the occurrence of other events specified in our Senior Facilities Agreement, could result in an event of default under the Senior Facilities Agreement, which would give our lender the right to terminate its commitments to provide additional loans under the Senior Facilities Agreement and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lender first-priority liens against all of our assets as collateral. Failure to comply with the covenants or other restrictions in the Senior Facilities Agreement could result in a default. If the debt under our Senior Facilities Agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results.

If we cannot maintain our company culture as we grow, our success and our business may be harmed.

We believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our culture. If we fail to maintain our company culture, our business and competitive position may be adversely affected.

We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our operating results, our stock price and the value of your investment could decline.

Our operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our operating results include the following:

 

   

fluctuations in demand for or pricing of our platform;

 

   

our ability to attract new customers;

 

   

our ability to retain and grow engagement with our existing customers;

 

   

our ability to expand our relationships with our accounting firm partners, financial institution partners, and accounting software partners, or identify and attract new partners;

 

   

customer expansion rates;

 

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changes in customer preference for cloud-based services as a result of security breaches in the industry or privacy concerns, or other security or reliability concerns regarding our products;

 

   

fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;

 

   

changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;

 

   

potential and existing customers choosing our competitors’ products or developing their own solutions in-house;

 

   

the development or introduction of new platforms or services that are easier to use or more advanced than our current suite of services, especially related to the application of artificial intelligence-based services;

 

   

our failure to adapt to new forms of payment that become widely accepted, including cryptocurrency;

 

   

the adoption or retention of more entrenched or rival services in the international markets where we compete;

 

   

our ability to control costs, including our operating expenses;

 

   

the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;

 

   

the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;

 

   

the amount and timing of costs associated with recruiting, training, and integrating new employees, and retaining and motivating existing employees;

 

   

fluctuation in market interest rates, which impacts interest earned on funds held for customers;

 

   

the effects of acquisitions and their integration;

 

   

general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;

 

   

the impact of new accounting pronouncements;

 

   

changes in the competitive dynamics of our market;

 

   

security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and

 

   

awareness of our brand and our reputation in our target markets.

Any of these and other factors, or the cumulative effect of some of these factors, may cause our operating results to vary significantly. In addition, we expect to incur significant additional expenses due to the increased costs of operating as a public company. If our quarterly operating results fall below the expectations of investors and securities analysts who follow our stock, the price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

 

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Risks Related to Ownership of Our Common Stock

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

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us, and may vary from the market price of our common stock following this offering. An active trading market for our common stock may not develop on the New York Stock Exchange or elsewhere or, if developed, any market may not be sustained. The market prices of the securities of newly public companies such as ours have historically been highly volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

overall performance of the equity markets;

 

   

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

 

   

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

 

   

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

 

   

recruitment or departure of key personnel;

 

   

the economy as a whole and market conditions in our industry;

 

   

negative publicity related to the real or perceived quality of our platform, as well as the failure to timely launch new products and services that gain market acceptance;

 

   

rumors and market speculation involving us or other companies in our industry;

 

   

announcements by us or our competitors of new products or services, commercial relationships, or significant technical innovations;

 

   

acquisitions, strategic partnerships, joint ventures, or capital commitments;

 

   

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

 

   

lawsuits threatened or filed against us, litigation involving our industry, or both;

 

   

developments or disputes concerning our or other parties’ products, services or intellectual property rights;

 

   

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

 

   

interpretations of any of the above or other factors by trading algorithms, including those that employ natural language processing and related methods to evaluate our public disclosures;

 

   

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

 

   

the expiration of contractual lock-up or market stand-off agreements; and

 

   

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

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

 

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of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions.

Based upon shares outstanding as of September 30, 2019, upon the completion of this offering, our executive officers, directors, and current beneficial owners of 5% or more of our common stock will, in the aggregate, beneficially own approximately 63% of our outstanding common stock. These persons, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

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

Provisions in our restated certificate of incorporation and restated bylaws, as they will be in effect upon the completion of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and restated bylaws will include provisions that:

 

   

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

 

   

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

 

   

specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer;

 

   

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

 

   

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

 

   

prohibit cumulative voting in the election of directors;

 

   

provide that our directors may be removed for cause only upon the vote of sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock;

 

   

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

 

   

require the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation.

In addition, our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative

 

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action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law (DGCL), our restated certificate of incorporation, or our restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. This exclusive forum provision will not apply to claims that are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not preclude the filing of claims brought to enforce any liability or duty created by the Exchange Act or Securities Act or the rules and regulations thereunder in federal court.

Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock. See the section titled “Description of Capital Stock” for additional information.

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

We are an “emerging growth company,” as defined in the 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 the auditor attestation requirements of Section 404 reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, 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 common stock less attractive to investors. In addition, 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 will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities, and (iv) the last day of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of December 31st, our second fiscal quarter, of such fiscal year.

We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future operating results may not be as comparable to the operating results of certain other companies in our industry that adopted such standards. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

 

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We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.

Our management team has limited experience managing a public company.

Our management team has limited experience managing a publicly traded company, interacting with public company investors and securities analysts, and complying with the increasingly complex laws pertaining to public companies. These new obligations and constituents require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could harm our business, operating results, and financial condition.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. In addition, our Senior Credit Facilities Agreement contains restrictions on our ability to pay cash dividends on our capital stock. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

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

Our stock price and trading volume following the completion of this offering will be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. Securities and industry analysts do not currently, and may never, publish research on our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price could be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our common stock, or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our common stock.

Future sales of our common stock in the public market could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market

 

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price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.

All of our directors and officers and the holders of substantially all of our capital stock and securities convertible into our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 180 days from the date of this prospectus. These lock-up agreements limit the number of shares of capital stock that may be sold immediately following this offering. Subject to certain limitations, approximately 8,296,358 shares of common stock, based upon an assumed initial public offering price of $17.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), will become eligible for sale upon expiration of the 180-day lock-up period. Goldman Sachs & Co. LLC may, in their sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

In addition, there were 11,246,769 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2019. We intend to register all of the shares of common stock issuable upon exercise of outstanding options or other equity incentives we may grant in the future, for public resale under the Securities Act. The shares of common stock will become eligible for sale in the public market to the extent such options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

Based on shares outstanding as of September 30, 2019, upon completion of this offering, holders of up to approximately 52,560,875 shares, or 76%, of our common stock will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Participation in this offering by entities affiliated with Dragoneer Investment Group, LLC could reduce the public float for our shares.

Certain entities affiliated with Dragoneer Investment Group, LLC, have indicated an interest in purchasing up to 1,500,000 shares of our common stock in this offering at the initial public offering price per share. Because this indication of interest is not a binding agreement or commitment to purchase, such entities could determine to purchase more, less, or no shares in this offering, or the underwriters could determine to sell more, less, or no shares to such entities.

If these entities purchase all or a portion of the shares in which they have indicated an interest in this offering, such purchase could reduce the available public float for our shares if such entities hold these shares long-term.

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

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the

 

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net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, operating results, and prospects could be harmed, and the market price of our common stock could decline. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government that may not generate a high yield for our stockholders.

You will experience immediate and substantial dilution in the net tangible book value of the shares of common stock you purchase in this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock immediately after this offering. If you purchase shares of our common stock in this offering, you will suffer immediate dilution of $12.61 per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to the sale of common stock in this offering and the assumed public offering price of $17.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. Furthermore, if the underwriters exercise their option to purchase additional shares, if outstanding stock options and warrants are exercised, if we issue awards to our employees under our equity incentive plans, or if we otherwise issue additional shares of our common stock, you could experience further dilution. See the section titled “Dilution” for additional information.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, including changes in research and development, sales and marketing and general and administrative expenses (including any components of the foregoing) and our ability to achieve, and maintain, future profitability;

 

   

our business plan and our ability to effectively manage our growth;

 

   

our market opportunity, including our total addressable market;

 

   

our international expansion plans and ability to expand internationally;

 

   

anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

 

   

beliefs and objectives for future operations;

 

   

our ability to further attract, retain, and expand our customer base;

 

   

our ability to develop new products and services and bring them to market in a timely manner;

 

   

our expectations concerning relationships with third parties, including strategic partners;

 

   

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

 

   

the effects of increased competition in our markets and our ability to compete effectively;

 

   

future acquisitions or investments in complementary companies, products, services, or technologies;

 

   

our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business;

 

   

economic and industry trends, projected growth, or trend analysis;

 

   

our ability to attract and retain qualified employees;

 

   

the estimates and methodologies used in preparing our consolidated financial statements and determining stock option exercise prices;

 

   

the increased expenses associated with being a public company; and

 

   

the future market prices of our common stock.

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

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a

 

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very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this prospectus or to conform these statements to actual results or to changes in our expectations, except as required by law.

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.

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

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity, and market size, is based on information from various sources, as well as assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products and services. This information involves important assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity, and market size information included in this prospectus is generally reliable, information of this sort is inherently imprecise. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate is necessarily 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. The information contained on, or that can be accessed through, any website listed below is not a part of this prospectus.

This prospectus contains statistical data, estimates, and forecasts that are based on industry publications or reports generated by third-parties or other publicly available information, as well as other information based on our internal sources.

The source of, and selected additional information contained in, the independent industry and other publications related to the information so identified are provided below:

 

   

Mastercard, Business Payments 2022, 2018.

 

   

Levvel Research, 2018 Payables Insight Report, 2018.

 

   

Levvel Research, 2019 Payables Insight Report, 2019.

 

   

RPMG Research, Electronic Accounts Payable Benchmark Survey Results, 2018.

 

   

PYMNTS.COM, SMB Technology Adoption Index, 2016.

 

   

2018 Association for Financial Professionals (AFP) Payments Fraud and Control Survey Report.

 

   

Deloitte, B2B Payments for the Middle Market, 2016.

 

   

IDC Research, Inc., U.S. Small and Medium-Sized Business Forecast, 2018-2022: PCs and Peripherals, Systems and Storage, Telecommunications/Network Equipment, Software, IT Services, and Business Services, 2018.

 

   

SME Finance Forum, 2019 MSME Economic Indicators Database, 2019. The SME Finance Forum is managed by the International Finance Corporation (World Bank Group).

 

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USE OF PROCEEDS

We estimate that the net proceeds from our sale of 8,823,529 shares of common stock in this offering at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $134.3 million, or $155.3 million if the underwriters’ option to purchase additional shares is exercised in full.

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share would increase (decrease) the net proceeds from this offering by approximately $8.2 million, assuming the number of shares of our common stock offered by us remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered would increase (decrease) the net proceeds from this offering by approximately $15.8 million, assuming that the assumed initial public offering price of $17.00 remains the same, and after deducting the estimated underwriting discounts and commissions.

The principal purposes of this offering are to create a public market for our common stock, increase our visibility in the marketplace, obtain additional capital, and increase our capitalization and financial flexibility. We currently intend to use the net proceeds we receive from this offering for working capital and other general corporate purposes, which may include product development, general and administrative matters, and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. However, we do not have agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time.

We will have broad discretion over the uses of the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. In addition, our Senior Facilities Agreement contains restrictions on our ability to pay cash dividends on our capital stock.

 

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CAPITALIZATION

The following table sets forth our cash, cash equivalents and short-term investments, as well as our capitalization, as of September 30, 2019, on:

 

   

an actual basis;

 

   

a pro forma basis, which reflects (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of September 30, 2019 into 52,434,505 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation; and

 

   

a pro forma as adjusted basis, which reflects (i) all adjustments included in the pro forma column and (ii) the sale of 8,823,529 shares of our common stock in this offering at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

 

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The pro forma as adjusted information presented 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 this table together with our consolidated financial statements and related notes, “Selected Financial and Other Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.

 

     As of September 30, 2019  
     Actual     Pro Forma     Pro Forma
as
Adjusted(1)
 
     (in thousands, except share and per
share data)
 

Cash, cash equivalents and short-term investments

   $ 157,642     $ 157,642     $ 292,854  
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock warrant liabilities

   $ 853     $ -       $ -    

Redeemable convertible preferred stock: 106,090,134 shares authorized; 52,434,505 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted

     276,307       -         -    

Stockholders’ (deficit) equity:

      

Common stock: $0.00001 par value per share; 169,300,000 shares authorized, 8,296,358 shares issued and outstanding, actual; 500,000,000 shares authorized, 60,730,863 shares issued and outstanding, pro forma; 500,000,000 shares authorized, 69,554,392 shares issued and outstanding, pro forma as adjusted

     1       2       2  

Non-voting common stock: $0.00001 par value per share; 14,000,000 shares authorized, no shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma; no shares authorized, issued and outstanding, pro forma as adjusted

     -         -         -    

Preferred stock, $0.00001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     -         -         -    

Additional paid-in capital

     17,242       294,401       428,739  

Accumulated other comprehensive income

     128       128       128  

Accumulated deficit

     (123,352     (123,352     (123,352
  

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (105,981     171,179       305,517  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 171,179     $ 171,179     $ 305,517  
  

 

 

   

 

 

   

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $8.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered would increase (decrease) the amount of our pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $15.8 million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions. If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity, and total capitalization would increase by approximately $20.9 million, after deducting the estimated underwriting discounts and commissions, and we would have 70,877,921 shares of our common stock issued and outstanding, pro forma as adjusted.

 

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The number of shares of our common stock to be outstanding after this offering is based on 60,730,863 shares of our common stock outstanding as of September 30, 2019 and excludes:

 

   

11,246,769 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2019 under our 2006 Plan and our 2016 Plan, with a weighted-average exercise price of $6.98 per share;

 

   

961,750 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $16.27 per share;

 

   

62,500 shares of our common stock issuable upon the exercise of outstanding warrants to purchase common stock outstanding as of September 30, 2019, with a weighted-average exercise price of $6.40 per share;

 

   

51,370 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $1.46 per share;

 

   

12,500 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series D redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $2.50 per share;

 

   

5,632,463 shares of common stock that are not currently outstanding but may become issuable, when certain conditions are met, upon the issuance and exercise of warrants with an exercise price of $4.50 per share; and

 

   

8,681,191 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 181,191 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) 7,100,000 shares of our common stock reserved for future issuance under our 2019 Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii) 1,400,000 shares of our common stock reserved for issuance under our ESPP, which will become effective on the date of this prospectus.

On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2016 Plan will be added to the shares of our common stock reserved for issuance under our 2019 Plan, and we will cease granting awards under the 2016 Plan. Our 2019 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.

To the extent that any outstanding options to purchase our common stock are exercised or new awards are granted under our equity compensation plans, there will be further dilution to investors participating in this offering.

 

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DILUTION

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

As of September 30, 2019, our pro forma net tangible book value was approximately $169.6 million, or $2.79 per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of September 30, 2019, after giving effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 52,434,505 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation.

After giving effect to our sale in this offering of 8,823,529 shares of our common stock, at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2019 would have been approximately $305.5 million, or $4.39 per share. This represents an immediate increase in pro forma net tangible book value of $1.60 per share to our existing stockholders and an immediate dilution of $12.61 per share to investors purchasing common stock in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share

      $ 17.00  

Pro forma net tangible book value per share as of September 30, 2019, before giving effect to this offering

   $ 2.79     

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

     1.60     
  

 

 

    

Pro forma as adjusted net tangible book value per share

        4.39  
     

 

 

 

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

      $ 12.61  
     

 

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share, which is the midpoint of the price range reflected on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $0.12 per share and would increase (decrease) the dilution per share to new investors in this offering by $0.88 per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase of 1,000,000 shares in the number of shares of common stock offered would increase the pro forma as adjusted net tangible book value per share after this offering by $0.16 per share and would decrease the dilution to new investors by $0.16 per share, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each decrease of 1,000,000 shares in the number of shares of

 

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common stock offered would decrease the pro forma as adjusted net tangible book value per share after this offering by $0.17 per share and would increase the dilution to new investors by $0.17 per share, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering would be $4.61 per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $12.39 per share.

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2019, after giving effect to the pro forma adjustments described above, the difference between existing stockholders and new investors purchasing shares of common stock in this offering with respect to the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by our existing stockholders or to be paid by investors purchasing shares in this offering at an assumed offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses:

 

     Shares Purchased      Total Consideration      Average
Price

Per Share
 
     Number      Percent      Amount      Percent  

Existing stockholders

     60,730,863        87.3%      $ 285,866,000        65.6%      $ 4.71  

New public investors

     8,823,529        12.7%        150,000,000        34.4%      $ 17.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     69,554,392        100.0%      $ 435,866,000        100.0%      $ 6.27  
  

 

 

    

 

 

    

 

 

    

 

 

    

A $1.00 increase (decrease) in the assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $8.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus remains the same and after deducting the estimated underwriting discounts and commissions.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our common stock. If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own 85.7% and our new investors would own 14.3% of the total number of shares of our common stock outstanding after this offering.

In addition, to the extent we issue any additional stock options or any outstanding stock options or warrants are exercised, or we issue any other securities or convertible debt in the future, investors will experience further dilution.

The number of shares of our common stock to be outstanding after this offering is based on 60,730,863 shares of our common stock outstanding as of September 30, 2019 and excludes:

 

   

11,246,769 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2019 under our 2006 Plan and our 2016 Plan, with a weighted-average exercise price of $6.98 per share;

 

   

961,750 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $16.27 per share;

 

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62,500 shares of our common stock issuable upon the exercise of outstanding warrants to purchase common stock outstanding as of September 30, 2019, with a weighted-average exercise price of $6.40 per share;

 

   

51,370 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $1.46 per share;

 

   

12,500 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series D redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $2.50 per share;

 

   

5,632,463 shares of common stock that are not currently outstanding but may become issuable, when certain conditions are met, upon the issuance and exercise of warrants with an exercise price of $4.50 per share; and

 

   

8,681,191 shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 181,191 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) 7,100,000 shares of our common stock reserved for future issuance under our 2019 Plan which will become effective on the date immediately prior to the date of this prospectus, and (iii) 1,400,000 shares of our common stock reserved for issuance under our ESPP which will become effective on the date of this prospectus.

On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2016 Plan will be added to the shares of our common stock reserved for issuance under our 2019 Plan, and we will cease granting awards under the 2016 Plan. Our 2019 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present selected historical consolidated financial and other data for our business. We derived the selected consolidated statements of operations data for the fiscal years ended June 30, 2018 and 2019 and the consolidated balance sheet data as of June 30, 2019 from our audited consolidated financial statements that are included elsewhere in this prospectus. We derived our selected consolidated statements of operations for the three months ended September 30, 2018 and 2019 and our selected consolidated balance sheet data as of September 30, 2019 from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future, and the results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending June 30, 2020 or any other future period. You should read this information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.

 

    Year Ended June 30,     Three Months Ended
September 30,
 
          2018                 2019                 2018                 2019        
    (in thousands, except per share data)  

Consolidated Statements of Operations:

       

Revenue

       

Subscription and transaction fees

  $ 56,992     $ 85,951     $ 18,170     $ 28,548  

Interest on funds held for customers

    7,873       22,400       4,254       6,632  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    64,865       108,351       22,424       35,180  

Cost of revenue(1)

    19,372       29,918       6,341       9,147  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    45,493       78,433       16,083       26,033  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

       

Research and development(1)

    17,986       28,924       5,424       11,515  

Sales and marketing(1)

    19,290       30,114       5,944       10,267  

General and administrative(1)

    16,034       29,198       5,937       10,535  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    53,310       88,236       17,305       32,317  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (7,817     (9,803     (1,222     (6,284

Other income, net

    632       2,333       317       639  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

    (7,185     (7,470     (905     (5,645

Provision for (benefit from) income taxes

    10       (156     (21     51  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (7,195   $ (7,314   $ (884   $ (5,696
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (1.01   $ (0.94)     $ (0.12   $ (0.69
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    7,155       7,797       7,423       8,231  
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    $ (0.13     $ (0.09
   

 

 

     

 

 

 

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

      57,599         60,665  
   

 

 

     

 

 

 

 

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(1)

Includes stock-based compensation expense as follows (in thousands):

 

     Year Ended June 30,      Three Months Ended
September 30,
 
         2018              2019              2018              2019      

Cost of revenue

   $ 78      $ 331      $ 69      $ 148  

Research and development

     429        1,128        233        671  

Sales and marketing

     508        922        166        382  

General and administrative

     530        1,701        139        1,075  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,545      $ 4,082      $ 607      $ 2,276  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(2)

See Notes 12 and 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders and pro forma net loss per share attributable to common stockholders, and the weighted-average number of shares used in the computation of the per share amounts.

 

    As of June 30, 2019     As of
September 30,
2019
 
    (in thousands)  

Consolidated Balance Sheet Data:

   

Cash, cash equivalents and short-term investments

  $ 162,275     $ 157,642  

Working capital

    163,685       158,544  

Funds held for customers

    1,329,306       1,466,492  

Total assets

    1,526,298       1,662,157  

Redeemable convertible preferred stock warrant liabilities

    688       853  

Deferred revenue, current and non-current

    5,255       5,248  

Customer fund deposits

    1,329,306       1,466,492  

Redeemable convertible preferred stock

    276,307       276,307  

Accumulated deficit

    (117,656     (123,352

Total stockholders’ deficit

    (102,657     (105,981

 

    Year Ended June 30,     Three Months Ended
September 30,
 
    2018     2019     2018     2019  

Key Business Metrics:

       

Number of Customers at End of Period(1)

    63,653       76,790       67,511       81,374  

Total Payment Volume (in millions)(1)

  $ 49,592     $ 71,282     $ 15,514     $ 21,982

Transactions Processed(1)

    15,256,358       19,861,298       4,491,511       5,934,610  

 

(1)

For definitions of Number of Customers, Total Payment Volume, and Transactions Processed, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics.”

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly-titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

 

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We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to assist investors in seeing our financial performance using a management view. We believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

 

     Year Ended June 30,     Three Months Ended
September 30,
 
     2018     2019     2018     2019  

Non-GAAP gross profit (in thousands)

   $ 47,396     $ 82,154     $ 16,847     $ 27,170  

Non-GAAP gross margin

     73     76     75     77

Free cash flow (in thousands)

   $ (10,402   $ (8,248   $ (3,510   $ (4,541

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense, depreciation and amortization expense and amortization of deferred costs. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance. The following table presents a reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our GAAP gross profit and GAAP gross margin for the periods presented (amounts in thousands):

 

     Year Ended June 30,     Three Months Ended
September 30,
 
     2018     2019     2018     2019  

Total revenue

   $ 64,865     $ 108,351     $ 22,424     $ 35,180  

Gross profit

     45,493       78,433       16,083       26,033  

Add:

        

Stock-based compensation expense

     78       331       69       148  

Depreciation and amortization expense and amortization of deferred costs

     1,825       3,390       695       989  
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross profit

   $ 47,396     $ 82,154     $ 16,847     $ 27,170  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     70     72     72     74

Non-GAAP gross margin

     73     76     75     77

 

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Free Cash Flow

Free cash flow is defined as net cash used in operating activities reduced by purchases of property and equipment and capitalization of internal-use software costs. We believe free cash flow is an important liquidity measure of the cash (if any) that is available, after purchases of property and equipment and capitalization of internal-use software costs, for operational expenses and investment in our business. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. The following table presents a reconciliation of our free cash flow to net cash used in operating activities for the periods presented (in thousands):

 

     Year Ended June 30,     Three Months Ended
September 30,
 
     2018     2019     2018     2019  

Net cash used in operating activities

   $ (8,356   $ (3,949   $ (2,255   $ (2,380

Purchases of property and equipment

     (1,313     (2,743     (834     (1,946

Capitalization of internal-use software costs

     (733     (1,556     (421     (215
  

 

 

   

 

 

   

 

 

   

 

 

 

Free cash flow

   $ (10,402   $ (8,248   $ (3,510   $ (4,541
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the section titled “Selected Financial and Other Data” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, March 31, and June 30.

Overview

We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for small and midsize businesses (SMBs). By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.

Our purpose-built, artificial-intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Customers use our platform to generate and process invoices, streamline approvals, send and receive payments, reconcile their books, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, and payment processors, enabling our customers to access these mission-critical services through a single connection. In essence, we sit at the center of an SMB’s accounts payable and accounts receivable operations.

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales, and indirectly through accounting firms and strategic partnerships. As of September 30, 2019, our partners included some of the most trusted brands in the financial services business, including more than 70 of the top 100 accounting firms and several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase and American Express. As we add customers and partners, we expect our network to continue to grow organically.

 

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Since our founding, our dedication to customer experience and innovation has propelled us to achieve numerous key business and financial milestones. As we have expanded our platform, launched new products and added new strategic partners over time, we have experienced significant growth in annual payment volume processed:

Our Track Record of Organic Growth

 

 

LOGO

We have grown rapidly and scaled our business operations in recent periods. Our total revenue was $64.9 million and $108.4 million for fiscal 2018 and 2019, respectively, an increase of 67%. Our total revenue was $22.4 million and $35.2 million for the three months ended September 30, 2018 and 2019, respectively, an increase of 57%. We incurred net losses of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively, and $0.9 million and $5.7 million for the three months ended September 30, 2018 and 2019, respectively.

Our Revenue Model

We generate revenue by charging subscription and transaction fees, and by earning interest on funds held in trust on behalf of customers while their payment transactions are clearing.

Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per transaction. Transactions include check issuance, ACH origination, cross-border payments, virtual card issuance, and creation of invoices. Much of our revenue comes from repeat transactions; in fact, repeat transactions by our customers are an important contributor to our recurring revenue: approximately 80% of both the Total Payment Volume (as defined below) and the number of transactions on our platform in every month of fiscal 2019 represented payments to suppliers or from clients that had also been paid or received by those same customers in the preceding three months.

 

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Our pricing model reflects the flexibility and value that our customers have come to expect from our platform. Most of our SMB customers pay their subscription fee monthly, while some customers enter into annual contracts with up-front payments. Our financial institution strategic partners typically sign multi-year contracts with minimum annual revenue commitments.

We offer a variety of subscription price plans to our customers depending on their required features and functionality. The below chart is an illustrative view of what we provide our customers as part of the different plans but it is not a comprehensive list of our product offerings. Note that network members who are not customers do not pay subscription or transaction fees but become prospects for our paid services in the future.

Current Subscription Plans

 

 

LOGO

Our transaction fees include the following:

 

Transaction Fees

  

Prices

ACH Processing    $0.49 / send and receive
Checks or Invoices Mailed    $1.69 / check payment or invoice
Virtual Card Payments    Variable based upon transaction size
Cross-Border Wire Transfers—U.S. Dollars    $9.99 / transaction
Cross-Border Wire Transfers—Foreign Exchange    Variable based upon transaction size and currency

Transactions priced on a variable basis include cross-border foreign currency and virtual card payments, for which our revenue is a percentage of the dollar value of the transactions that we process.

With our strategic and accounting partners, we generally provide wholesale prices, and our partners determine the final prices to their clients.

 

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We also generate revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing. When we process payment transactions, the funds flow through our bank accounts and we have a balance of funds held for customers that is a function of the volume and the type of payments processed. Interest is earned from interest-bearing deposit accounts, certificates of deposit, money market funds, commercial paper, and U.S. Treasury securities. We hold these funds from the day they are withdrawn from a payer’s account to the day the funds are credited to the receiver. This revenue can fluctuate depending on the amount of customer funds held, as well as our yield on customer funds invested, which is influenced by market interest rates and our investments. We are authorized to hold customer funds and process payments through our bank accounts because we are a licensed money transmitter in all required U.S. states. This allows us to provide advanced treasury services and protect our customers from potential fraud.

Our Business Model

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales. We also acquire customers indirectly by partnering with leading companies that are trusted by our current and prospective customers, including accounting firms, financial institutions, and software companies.

Our revenue is visible and predictable from our existing customers. For the fiscal year ended June 30, 2019, over 80% of our subscription and transaction revenue, which we also refer to as core revenue, came from customers who were acquired prior to the start of the fiscal year. We expand within our existing customer base by adding more users, increasing transactions per customer, launching additional products, and through pricing and packaging our services. We make it easy for SMBs to try our platform through our risk-free trial program. Should an SMB choose to become a customer after the trial period, it can take several months to adapt their financial operations to fully leverage our platform. Even with a transition period, however, we believe our customer retention is strong. Excluding those from our financial institution partners, over 82% of customers as of June 30, 2018 were still customers as of June 30, 2019.

Net Dollar-Based Retention Rate

Net dollar-based retention rate is an important indicator of customer satisfaction and usage of our platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the end of each fiscal year. We calculate our net dollar-based retention rate by starting with the revenue billed to customers in the last quarter of the prior fiscal year (Prior Period Revenue). We then calculate the revenue billed to these same customers in the last quarter of the current fiscal year (Current Period Revenue). Current Period Revenue includes any upsells and is net of contraction or attrition, but excludes revenue from new customers and excludes interest earned on customer funds held in trust. We then repeat the calculation of Prior Period Revenue and Current Period Revenue with respect to each of the preceding three quarters, and aggregate the four Prior Period Revenues (the Aggregate Prior Period Revenue) and the four Current Period Revenues (the Aggregate Current Period Revenue). Our net dollar-based retention rate equals the Aggregate Current Period Revenue divided by Aggregate Prior Period Revenue. Our net dollar-based retention rate was 110% for fiscal 2019 and 106% for fiscal 2018, which increase is primarily attributable to an increase in the number of users, transactions per customer, and selling additional products to those customers.

Cohort Analysis

To illustrate the economics of our customer relationships, we are providing an analysis of the revenue growth and contribution margin to date of the customers we acquired during fiscal 2017,

 

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excluding customers acquired through financial institutions, which we refer to as the 2017 Cohort. We exclude customers from financial institutions from our cohort analysis because our financial institution partners pay minimum fees regardless of the number of customers that adopt our platform and, as a result, our cost of sales and sales and marketing expenses for these customers are not comparable to those of customers not acquired through financial institutions. We selected the 2017 Cohort to illustrate the potential long-term growth and profitability of our customer base. The 2017 Cohort of customers represents various industries and geographies and includes customers who have expanded their subscriptions as well as those that have reduced or not renewed their subscriptions, and we believe the 2017 Cohort fairly represents our overall customer base, excluding those acquired through our financial institution partners. We define contribution margin for a period as the billed revenue that represents amounts billed to and collected from our customers less the estimated, allocated variable costs for the period associated with such revenues. The cost allocated to these revenues includes cost of sales and sales and marketing expenses associated with converting the customer. We define contribution margin percentage for a cohort in a period as contribution margin divided by the revenue associated with such cohort in a given period. The growth of the 2017 Cohort is depicted below:

 

 

LOGO

Cost of sales expense includes customer support and payment operations expenses, transaction fulfillment costs, and a portion of our platform technical operations costs. Sales and marketing expense includes personnel-related expenses, sales commissions paid associated with these customers, marketing program expenses, and allocated overhead costs. Costs of sales and allocated sales and marketing expenses exclude share-based compensation and depreciation expenses. A significant majority of our sales and marketing expenses are dedicated to acquiring new customers. Accordingly, these costs are mainly associated with the newest cohort of customers in a given fiscal year.

We allocate cost of sales to a cohort by multiplying the period non-GAAP Gross Margin for all cohorts by the revenue of the 2017 Cohort.

We allocate our sales and marketing expenses to a cohort in two steps. First, we segment expenses between non-commission sales expenses and marketing expenses. We then separately assign these categories of expenses to acquiring or renewing and upselling activity. We allocate non-commission sales expenses using the estimated proportion of time, based on internal data, that our sales team spends acquiring customers versus renewing or upselling customers. We allocate marketing expenses based on the estimated proportion of marketing expenses we spend to acquire or renew and upsell customers. In the second step, we allocate the expenses to the cohort based on the

 

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cohort’s respective share of revenue in each category. We exclude all sales and marketing expenses associated with our financial institution partners.

We exclude all research and development and general and administrative expenses from this analysis because these expenses support the growth of our business generally.

For fiscal 2017, the 2017 Cohort represented $6.7 million in revenue billed to these customers and $11.8 million in sales and marketing costs to acquire these customers, and $2.3 million of cost of sales representing a computed contribution margin of -108%. In fiscal 2018 and 2019, the 2017 Cohort represented $14.2 million and $17.3 million, respectively, in revenue billed to these customers and $3.9 million and $4.2 million, respectively, in estimated costs related to retaining and expanding these customers, representing a computed contribution margin of 73% and 76%, respectively.

While we believe the 2017 Cohort to be a fair representation of our overall customer base, excluding those acquired through our financial institution partners, the 2017 Cohort may not be representative of any other group of customers or periods. We expect that the contribution margin and contribution margin percentage of our customer cohorts will fluctuate from one period to another depending upon the number of customers remaining in each cohort, our ability to increase their revenue, as well as changes in our associated costs. We may not experience similar financial outcomes from future customers. The revenue, associated costs, contribution margins, and contribution margin percentages for other cohorts could differ from those for the 2017 Cohort. Contribution margin is not a measure that our management uses to manage or evaluate our business nor is it a predictor of past or future financial performance. Unlike our financial statements, contribution margin is not prepared in accordance with GAAP and may not be comparable to contribution margin calculations prepared by other companies. Contribution margin is an operational measure; it is not a financial measure of profitability and is not intended to be used as a proxy for the profitability of our business.

Customer Acquisition Efficiency

Our efficient direct and indirect go-to-market strategy, combined with our recurring revenue model, results in our short payback period. We define “payback period” as the number of quarters it takes for the cumulative non-GAAP gross profit we earn from customers acquired during a given quarter to exceed our total sales and marketing spend in that same quarter. For customers acquired during fiscal 2018, the average payback period was approximately five quarters.

Key Factors Affecting Our Performance

Acquiring New Customers

Sustaining our growth requires continued adoption of our platform by new customers. We will continue to invest in our efficient go-to-market strategy as we further penetrate our addressable markets. Our financial performance will depend in large part on the overall demand for our platform, particularly demand from SMBs. As of September 30, 2019, we had over 81,000 customers across a wide variety of industries and geographies in the United States.

Expanding Our Relationship with Existing Customers

Our revenue grows as we address the evolving needs of our customers and as our customers increase usage of our platform. As they realize the benefits of our solution, our customers often increase the number of users on our platform. We also experience growth from customers when we introduce new products and services that are adopted by our customers.

 

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Our ability to monetize our payments-related services is an important part of our business model. Today, we charge fixed and variable transaction fees for payment transactions initiated, and our revenue and payment volume generally grow as customers process more transactions on our platform. Our ability to influence customers to process more transactions on our platform will have a direct impact on our transaction fee revenue. As payment volume grows we experience growth in the level of funds held for customers, and we also earn interest revenue on these funds while payment transactions are clearing. Our interest earned on customer funds is positively correlated with our interest earnings rate and with customer fund balances. Our interest earnings rate is a function of the market interest rate environment and the mix of our investments across interest bearing accounts, government money market funds, and short-term highly liquid securities. The fund balances are a function of the amount of money transmitted by our customers and the mix of payment types, with some payment types averaging more days in transit than others.

Investing in Sales and Marketing

We intend to increase our marketing spend to drive awareness and generate demand to acquire new customers and develop new accounting firm and strategic partner relationships. Our investment in supporting accounting firms and strategic partners has been significant and will continue. We support these accounting firms and strategic partners through education and training initiatives like hosting webinars, presenting at industry trade shows, and developing sell-sheet case studies.

As a result, we expect our expenses related to marketing and sales to increase as we continue to grow. These efforts will require us to invest significant financial and other resources.

Investing in Our Platform

We will invest in our platform to maintain our position as a leading provider of SMB back-office financial software. To drive adoption and increase penetration within our base, we will continue to introduce new products and features. We believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability. We will continue to leverage emerging technologies and invest in the development of more features that meet and anticipate SMB needs.

 

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Key Business Metrics

We regularly review several metrics, including the metrics presented in the table below, to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of the key metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts or investors.

 

    As of June 30,           As of September 30,        
    2018     2019     % Growth     2018     2019     % Growth  

Number of Customers(1)

    63,653       76,790       21     67,511       81,374       21
    Year ended June 30,           Three months ended
September 30,
       
    2018     2019     % Growth     2018     2019     % Growth  

Total Payment Volume (amounts in millions)

  $ 49,592     $ 71,282       44   $ 15,514     $ 21,982       42
    Year ended June 30,           Three months ended
September 30,
       
    2018     2019     % Growth     2018     2019     % Growth  

Transactions Processed

    15,256,358       19,861,298       30     4,491,511       5,934,610       32

 

(1)

Number of customers as of June 30, 2018 and September 30, 2018 includes approximately 5,000 and 4,500 customers, respectively, from a strategic partner that did not renew its contract during fiscal 2019. Excluding these customers, our customer growth would have been 31% during fiscal 2019 and 29% during the three months ended September 30, 2019.

Number of Customers

For the purposes of measuring our key business metrics, we define customers as entities that are either billed directly by us or for which we bill our strategic partners during a particular period. Customers who are using our platform during a trial period are not counted as new customers during that period. If an organization has multiple entities billed separately for the use of our platform, each entity is counted as a customer. The number of customers in the table above represents the total number of customers at the end of our fiscal year and quarter.

Total Payment Volume

To grow revenue from customers we must deliver a product experience that helps them automate their back-office financial operations. The more they use the product and rely upon our features to automate their operations, the more transactions they process on our platform. This metric provides an important indication of the value of transactions that customers are completing on the platform and is an indicator of our ability to generate revenue from our customers. We define Total Payment Volume (TPV) as the value of customer transactions that we process on our platform in a period. Our calculation of TPV includes payments that are subsequently reversed. Such payments comprised approximately 1% of TPV for fiscal 2019 and the three months ended September 30, 2019.

Transactions Processed

We define transactions processed as the number of customer payment transactions, such as checks, ACH items, wire transfers, and virtual cards, initiated and processed through our platform during a particular period.

 

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Components of Results of Operations

Revenue

We generate revenue from two sources: (1) subscription and transaction fees, and (2) interest on funds held for customers.

Subscription fees are fixed monthly or annually and charged to our customers for the use of our platform to process transactions. Subscription fees are generally charged on a per user per period basis, normally monthly or annually. Transaction fees are fees collected for each transaction processed through our platform, on either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of checks, ACH, cross-border payments, virtual cards, and the creation of invoices.

Interest on funds held for customers consists of the interest that we earn from customer funds while payment transactions are clearing. We invest these funds in interest-bearing investment securities, primarily money market funds, commercial paper, and U.S. Treasury securities, until those payments are cleared and credited to the intended recipient.

Our contracts with SMB and accounting firm customers primarily consist of cancelable contracts that can be terminated by either party without penalty at any time. In July 2019, we updated our terms of service for our monthly subscription contracts, whereby cancellations become effective at the end of the monthly subscription period in which the last transaction is processed. We recognize subscription revenue for cancelable contracts on a daily basis and transaction revenue on the date we process the transactions. Some of our contracts are non-cancelable annual or monthly contracts. We recognize revenue for non-cancelable annual and monthly contracts as a series of distinct services satisfied over time. We determine the transaction price for such contracts by estimating the total consideration to be received over the contract term from subscription and transaction fees. We recognize the transaction price from annual and monthly contracts as a single performance obligation based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period.

We enter into multi-year contracts with financial institution customers that typically include fees for initial implementation services that are paid during the period. Fees for subscription and transaction processing services are subject to guaranteed monthly minimum fees that are paid over the contract term. These contracts enable the financial institutions to provide their clients with access to online bill pay services through the financial institution’s online platform. Implementation services are required up-front to establish an infrastructure that allows the financial institution’s online platform to communicate with our platform. The financial institution’s clients cannot access online bill pay services until implementation is complete and the financial institution has provided acceptance of the implementation services. The fees we earn through these contracts vary based on the number of users and transactions processed. We have determined these contracts meet the variable consideration allocation exception and therefore we recognize guaranteed monthly payments and any overages as revenue in the month they are earned. We recognize implementation fees based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period.

Cost of Revenue and Expenses

Cost of revenue—Cost of revenue consists primarily of personnel-related costs, including stock-based compensation expenses, for our customer success and payment operations teams, certain costs that are directly attributed to processing customers’ transactions (such as the cost of printing checks), postage for mailing checks, expenses for processing payments (ACH, check, and cross-border wires), direct and amortized costs for implementing and integrating our cloud-based platform

 

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into our strategic partners’ systems, costs for maintaining, optimizing, and securing our cloud payments infrastructure, amortization of capitalized internal-use developed software, fees on the investment of customer funds, and allocation of overhead costs. We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period, as we continue to invest in growing our business.

Research and development—Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, incurred in developing new products or enhancing existing products, and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our platform and amortize such costs in cost of revenue over the estimated life of the new product or incremental functionality, which is generally three years.

We expense a substantial portion of research and development expenses as incurred. We believe delivering new functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments in and expand our offerings to enhance our customers’ experience and satisfaction, and to attract new customers. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our research and development team to develop new products and product enhancements.

Sales and MarketingSales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, sales commissions, marketing program expenses, travel-related expenses and costs to market and promote our platform through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining new customer contracts are deferred and amortized ratably over the estimated period of our relationship with new customers. We focus our sales and marketing efforts on generating awareness of our company, platform, and products, creating sales leads, and establishing and promoting our brand. We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events. We expect our sales and marketing expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period.

General and Administrative—General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for finance, risk management, legal and compliance, human resources and information technology, costs incurred for external professional services, losses from fraud and credit exposure, and allocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations, and professional services. We also expect to increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period.

Other Income, Net—Other income, net consists primarily of interest income on corporate funds invested in money market instruments and highly liquid short-term investments, partially offset by interest expense on our bank borrowings.

Provision for (Benefit from) Income Taxes—This consists of income tax benefit shown on the consolidated statements of operations that is offset against the income tax on the unrealized gain on

 

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investments in available-for-sale securities that is shown on the consolidated statements of other comprehensive loss, as well as state income taxes.

Results of Operations

The following table sets forth our results of operations for the periods presented (in thousands):

 

     Year Ended June 30,     Three Months Ended
September 30,
 
     2018     2019     2018     2019  

Revenue

        

Subscription and transaction fees

   $ 56,992     $ 85,951     $ 18,170     $ 28,548  

Interest on funds held for customers

     7,873       22,400       4,254       6,632  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     64,865       108,351       22,424       35,180  

Cost of revenue(1)

     19,372       29,918       6,341       9,147  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     45,493       78,433       16,083       26,033  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development(1)

     17,986       28,924       5,424       11,515  

Sales and marketing(1)

     19,290       30,114       5,944       10,267  

General and administrative(1)

     16,034       29,198       5,937       10,535  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     53,310       88,236       17,305       32,317  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (7,817     (9,803     (1,222     (6,284

Other income, net

     632       2,333       317       639  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (7,185     (7,470     (905     (5,645

Provision for (benefit from) income taxes

     10       (156     (21     51  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,195   $ (7,314   $ (884   $ (5,696
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expenses as follows (in thousands):

 

     Year Ended June 30,      Three Months Ended
September 30,
 
          2018                2019                2018                2019       

Cost of revenue

   $ 78      $ 331      $ 69      $ 148  

Research and development

     429        1,128        233        671  

Sales and marketing

     508        922        166        382  

General and administrative

     530        1,701        139        1,075  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,545      $ 4,082      $ 607      $ 2,276  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents the components of our consolidated statements of operations for the periods presented as a percentage of total revenue:

 

     Year Ended June 30,     Three Months Ended
September 30,
 
         2018             2019             2018             2019      

Revenue

        

Subscription and transaction fees

     88     79     81     81

Interest on funds held for customers

     12     21     19     19
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     100     100     100     100

Cost of revenue

     30     28     28     26
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     70     72     72     74
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development

     28     27     24     33

Sales and marketing

     29     27     27     29

General and administrative

     25     27     26     30
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     82     81     77     92
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (12 )%      (9 )%      (5 )%      (18 )% 

Other income, net

     1     2     1     2
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (11 )%      (7 )%      (4 )%      (16 )% 

Provision for (benefit from) income taxes

     -         -         -         -    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (11 )%      (7 )%      (4 )%      (16 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Comparison of the Three Months Ended September 30, 2018 and 2019

Revenue

The components of our revenue during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):

 

     Three Months Ended
September 30,
     Change  
         2018               2019           Amount      %  

Subscription and transaction fees

   $ 18,170      $ 28,548      $ 10,378        57

Interest on funds held for customers

     4,254        6,632        2,378        56
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 22,424      $ 35,180      $ 12,756        57
  

 

 

    

 

 

    

 

 

    

 

 

 

Subscription and transaction fees increased to $28.5 million during the three months ended September 30, 2019 from $18.2 million during the three months ended September 30, 2018, an increase of $10.3 million or 57%. Subscription fees increased to $18.0 million during the three months ended September 30, 2019 from $13.0 million during the three months ended September 30, 2018, an increase of $5.0 million or 38%, driven primarily by the increase in customers and average subscription revenue per customer. Transaction fees increased to $10.5 million during the three months ended September 30, 2019 from $5.1 million during the three months ended September 30, 2018, an increase of $5.4 million or 105%, primarily due to increased adoption of new product offerings and the increase in the number of transactions initiated. Our total customers increased to over 81,000 as of

 

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September 30, 2019 compared to over 67,000 as of September 30, 2018, or an increase of approximately 21%. Our average subscription revenue and transaction fees per customer increased by 15% and 70%, respectively, during the three months ended September 30, 2019, driven primarily by the increase in customers’ usage of our platform and payment activities.

Interest on funds held for customers increased to $6.6 million during the three months ended September 30, 2019 from $4.3 million during the three months ended September 30, 2018, an increase of $2.4 million or 56%. The increase was due primarily to the increase in the balance of customer funds held while payment transactions are clearing and also from the increase in the yield we earned from investing the funds. The average balance of customer funds in transit increased to approximately $1.3 billion during the three months ended September 30, 2019 from approximately $946 million during the three months ended September 30, 2018, or an increase of 41%. Fund balances increased primarily due to growth in TPV. Our TPV increased to approximately $22.0 billion during the three months ended September 30, 2019 from approximately $15.5 billion during the three months ended September 30, 2018, or an increase of 42%. The annualized rate of return earned on customer funds held was 1.97% during the three months ended September 30, 2019, an increase of 19 basis points over the annualized yield during the same period in fiscal 2019. The increase in yield was primarily due to the short-term interest rate environment as the average daily effective Federal Funds rate increased by 27 basis points during the three months ended September 30, 2019 over the same period in fiscal 2019.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue, gross profit, and gross margin during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):

     Three months ended
September 30,
    Change  
         2018             2019         Amount      %  

Cost of revenue

   $ 6,341     $ 9,147     $ 2,806        44

Gross profit

   $ 16,083     $ 26,033     $ 9,950        62

Gross margin

     72     74     

Cost of revenue increased to $9.1 million during the three months ended September 30, 2019 from $6.3 million during the three months ended September 30, 2018, an increase of $2.8 million or 44%. The increase was due primarily to a $1.4 million increase in direct costs associated with the processing of our customers’ payment transactions, use of software applications and equipment, bank fees for holding the funds of our customers, and data hosting services, which were driven by the increase in the number of customers and volume of transactions. The increase was also due to a $0.9 million increase in personnel-related costs, including stock-based compensation expense and amortization of increased deferred service costs, due to the hiring of additional personnel who were directly engaged in providing implementation and support services to our customers, and a $0.5 million increase in shared overhead costs. Our average headcount of such personnel during the three months ended September 30, 2019 increased by 33% compared to the same period in fiscal 2019.

Gross margin increased to 74% during the three months ended September 30, 2019 from 72% during the three months ended September 30, 2018. The increase was driven primarily by higher revenue on increased adoption of new product offerings.

 

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Research and Development Expenses

Research and development expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):

 

     Three months ended
September 30,
    Change  
         2018             2019         Amount      %  

Research and development expenses

   $ 5,424     $ 11,515     $ 6,091        112

Percentage of revenue

     24     33     

Research and development expenses increased to $11.5 million during the three months ended September 30, 2019 from $5.4 million during the three months ended September 30, 2018, an increase of $6.1 million or 112%. The increase was due primarily to a $5.0 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional personnel who were directly engaged in developing new product offerings, a $0.6 million increase in shared overhead costs, and a $0.5 million increase in costs for engaging consultants and temporary contractors who provided product development services. Our average research and development headcount during the three months ended September 30, 2019 increased by 67% compared to the same period in fiscal 2019.

As a percentage of total revenue, research and development expenses increased to 33% during the three months ended September 30, 2019 from 24% during the three months ended September 30, 2018 due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

Sales and Marketing Expenses

Sales and marketing expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):

 

     Three months ended
September 30,
    Change  
         2018              2019         Amount      %  

Sales and marketing expenses

   $ 5,944     $ 10,267     $ 4,323        73

Percentage of revenue

     27     29     

Sales and marketing expenses increased to $10.3 million during the three months ended September 30, 2019 from $5.9 million during the three months ended September 30, 2018, an increase of $4.4 million or 73%. The increase was due primarily to a $2.2 million increase in personnel-related costs (net of capitalized sales commissions of $0.4 million), including stock-based compensation expense, due to the hiring of additional personnel who were directly engaged in acquiring new customers and in marketing our products and services, and a $0.4 million increase in shared overhead costs. Our average sales and marketing headcount during the three months ended September 30, 2019 increased by 51% compared to the same period in fiscal 2019. The increase was also attributed to a $1.0 million increase in various marketing initiatives and activities, such as engaging consultants and attending marketing events, and a $0.8 million increase in advertising spend, as we continued to increase our effort in promoting our products and services and in increasing brand awareness.

As a percentage of total revenue, sales and marketing expenses increased to 29% during the three months ended September 30, 2019 from 27% during the three months ended September 30, 2018, due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

 

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General and Administrative Expenses

General and administrative expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):

     Three months ended
September 30,
    Change  
         2018              2019          Amount      %  

General and administrative expenses

   $ 5,937     $ 10,535     $ 4,598        77

Percentage of revenue

     26     30     

General and administrative expenses increased to $10.5 million during the three months ended September 30, 2019 from $5.9 million during the three months ended September 30, 2018, an increase of $4.6 million or 77%. The increase was due primarily to a $2.8 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional executive employees and administrative personnel. Our average general and administrative headcount during the three months ended September 30, 2019 increased by 65% compared to the same period in fiscal 2019. The increase was also due to a $0.7 million increase in recruiting fees and temporary staffing costs as we engaged external help to recruit employees or to temporarily fill certain roles within the organization, a $0.5 million increase in money transfer license fees and credit card processing fees, a $0.4 million increase in shared overhead costs, and a $0.3 million increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company.

As a percentage of total revenue, general and administrative expenses increased to 30% during the three months ended September 30, 2019 from 26% during the three months ended September 30, 2018 due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

Other Income, Net

Other income, net during the three months ended September 30, 2018 and 2019 was as follows (amounts in thousands):

 

     Three months ended
September 30,
     Change  
         2018               2019          Amount      %  

Other income, net

   $ 317      $ 639      $ 322        102

Other income, net increased to $0.6 million during the three months ended September 30, 2019 from $0.3 million during the three months ended September 30, 2018, due primarily to a $0.5 million increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments, partially offset by a $0.2 million loss on the revaluation of warrants liabilities.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes during the three months ended September 30, 2018 and 2019 was as follows (amounts in thousands):

 

     Three months ended
September 30,
     Change  
         2018             2019          Amount      %  

(Benefit from) provision for income taxes

   $ (21   $ 51      $ 72        (343 )% 

 

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The provision for income taxes during the three months ended September 30, 2019 pertains primarily to state income taxes. The benefit from income taxes during the three months ended September 30, 2018 pertains primarily to the income tax benefit that is reported on the consolidated statements of operations and is offset against the income tax on the unrealized gain on investments in available-for-sale securities that is shown on the consolidated statements of comprehensive loss.

Comparison of the Years Ended June 30, 2018 and 2019

The components of our revenue during fiscal 2018 and 2019 were as follows (amounts in thousands):

 

     Year Ended June 30,      Change  
         2018              2019          Amount      %  

Subscription and transaction fees

   $ 56,992      $ 85,951      $ 28,959        51

Interest on funds held for customers

     7,873        22,400        14,527        185
  

 

 

    

 

 

    

 

 

    

Total revenue

   $ 64,865      $ 108,351      $ 43,486        67
  

 

 

    

 

 

    

 

 

    

Subscription and transaction fees increased to $86.0 million during fiscal 2019 from $57.0 million during fiscal 2018, an increase of $29.0 million or 51%. Subscription fees increased to $59.6 million during fiscal 2019 from $42.0 million during fiscal 2018, an increase of $17.6 million or 42%, driven primarily by the increase in customers and average subscription revenue per customer. Transaction fees increased to $26.4 million during fiscal 2019 from $15.0 million during fiscal 2018, an increase of $11.4 million or 76%, primarily due to increased adoption of new product offerings and increases in the number of transactions initiated. Our total customers increased to over 76,000 as of June 30, 2019 compared to over 63,000 as of June 30, 2018, or an increase of approximately 21%. Our average subscription revenue and transaction fees per customer increased by 12% and 39%, respectively, during fiscal 2019, driven primarily by the increase in customers’ usage of our platform and payment activity.

Interest on funds held for customers increased to $22.4 million during fiscal 2019 from $7.9 million during fiscal 2018, an increase of $14.5 million or 185%. The increase was due primarily to the increase in the yield we earned from strategically investing funds held for customers and the increase in the balance of customer funds while payment transactions are clearing. The annualized rate of return on our average customer funds held was 1.99% during fiscal 2019, an increase of 101 basis points over the annualized yield during fiscal 2018. The increase in yield was primarily due to the short-term interest rate environment as the average daily effective Federal Funds rate increased by 85 basis points during fiscal 2019 over the prior fiscal year. Our active management of customer funds during fiscal 2019 also improved the return generated on our funds held. The average balance of customer funds in transit increased to approximately $1.1 billion during fiscal 2019 from approximately $777 million during fiscal 2018, or an increase of 42%. Fund balances increased primarily due to growth in TPV. Our TPV increased to approximately $71.3 billion during fiscal 2019 from approximately $49.6 billion during fiscal 2018, or an increase of 44%.

 

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Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue, gross profit, and gross margin during fiscal 2018 and 2019 were as follows (amounts in thousands):

 

     Year Ended June 30,     Change  
     2018     2019     Amount      %  

Cost of revenue

   $ 19,372     $ 29,918     $ 10,546        54

Gross profit

     45,493       78,433       32,940        72

Gross margin

     70     72     

Cost of revenue increased to $29.9 million during fiscal 2019 from $19.4 million during fiscal 2018, an increase of $10.5 million or 54%. The increase was due primarily to a $4.2 million increase in direct costs associated with the processing of our customers’ payment transactions, use of software applications and equipment, bank fees for holding the funds of our customers, and data hosting services, which were driven by the increase in the number of customers and volume of transactions. The increase was also due to a $4.0 million increase in personnel-related costs, including stock-based compensation expense and amortization of deferred service costs, due to the hiring of additional personnel who were directly engaged in providing implementation and support services to our customers, and a $1.4 million increase in shared overhead costs. Our average headcount of such personnel during fiscal 2019 increased by 26% compared to fiscal 2018.

Gross margin increased to 72% during fiscal 2019 from 70% during fiscal 2018. The increase was driven primarily by the increase in our total revenue and in our revenue mix, in particular the increase in interest on funds held for customers, which has low costs and high gross margin, partially offset by the increase in costs as a percentage of revenue related primarily to software applications that we used to support our customers as well as allocated shared overhead costs.

Research and Development Expenses

Research and development expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):

 

     Year Ended June 30,     Change  
     2018     2019     Amount      %  

Research and development expenses

   $ 17,986     $ 28,924     $ 10,938        61

Percentage of revenue

     28     27     

Research and development expenses increased to $28.9 million during fiscal 2019 from $18.0 million during fiscal 2018, an increase of $10.9 million or 61%. The increase was due primarily to an $8.1 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional personnel who were directly engaged in developing new product offerings and a related $1.5 million increase in shared overhead costs. Our average research and development headcount during fiscal 2019 increased by 45% compared to fiscal 2018.

As a percentage of total revenue, research and development expenses decreased to 27% during fiscal 2019 from 28% during fiscal 2018 due primarily to the leveraging of our overall expenses on higher revenue.

 

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Sales and Marketing Expenses

Sales and marketing expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):

 

     Year Ended June 30,     Change  
     2018     2019     Amount        %    

Sales and marketing expenses

   $ 19,290     $ 30,114     $ 10,824        56

Percentage of revenue

     29     27     

Sales and marketing expenses increased to $30.1 million during fiscal 2019 from $19.3 million during fiscal 2018, an increase of $10.8 million or 56%. The increase was due primarily to a $4.5 million increase in personnel-related costs (net of capitalized sales commissions of $2.1 million), including stock-based compensation expense, due to the hiring of additional personnel who were directly engaged in acquiring new customers and in marketing our products and services, and a $0.8 million increase in shared overhead costs due to the increase in headcount. Our average sales and marketing headcount during fiscal 2019 increased by 37% compared to fiscal 2018. The increase was also attributed to a $2.9 million increase in advertising spend and a $1.9 million increase in various marketing initiatives and activities, such as engaging consultants and attending marketing events, as we continued to increase our effort in promoting our products and services and in increasing brand awareness.

As a percentage of total revenue, sales and marketing expenses decreased to 27% during fiscal 2019 from 29% during fiscal 2018, due primarily to the leveraging of our overall expenses on higher revenue.

General and Administrative Expenses

General and administrative expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):

 

     Year Ended June 30,     Change  
     2018     2019     Amount      %  

General and administrative expenses

   $ 16,034     $ 29,198     $ 13,164        82

Percentage of revenue

     25     27     

General and administrative expenses increased to $29.2 million during fiscal 2019 from $16.0 million during fiscal 2018, an increase of $13.2 million or 82%. The increase was due primarily to a $6.4 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional executive employees and administrative personnel. Our average general and administrative headcount during fiscal 2019 increased by 63% compared to fiscal 2018. The increase was also due to a $1.9 million increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company, a $1.6 million increase in recruiting fees and temporary staffing costs as we engaged external help to recruit employees or to temporarily fill certain roles within the organization, a $1.5 million increase for sales and use taxes due to an increase in state reporting, collection and remittance requirements, and a $0.8 million increase in losses on funds held due to the increase in the number of instances of fraud during the year.

As a percentage of total revenue, general and administrative expenses increased to 27% during fiscal 2019 from 25% during fiscal 2018 as we engaged in more activities in connection with the overall growth of the business and our preparation to become a public company.

 

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Other Income, Net

Other income, net during fiscal 2018 and 2019 was as follows (amounts in thousands):

 

     Year Ended June 30,      Change  
         2018              2019          Amount      %  

Other income, net

   $ 632      $ 2,333      $ 1,701        269

Other income, net increased to $2.3 million during fiscal 2019 from $0.6 million during fiscal 2018, due primarily to a $2.1 million increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments, partially offset by an increase in interest expense of $0.4 million.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes during fiscal 2018 and 2019 was as follows (amounts in thousands):

 

     Year Ended June 30,     Change  
         2018              2019         Amount     %  

Provision for (benefit from) income taxes

   $ 10      $ (156   $ (166     -1,660

The benefit from income taxes during fiscal 2019 pertains primarily to the income tax benefit that is reported on the consolidated statements of operations and is offset against the income tax on the unrealized gain on investments in available-for-sale securities that is shown on the consolidated statements of comprehensive loss. The provision for income taxes during fiscal 2018 pertains to state income taxes.

 

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Quarterly Results of Operations

The following tables present our unaudited consolidated statements of operations for each of the last nine quarters in the period ended September 30, 2019, as well as the percentage of each line item to our total revenue for each quarter presented. The unaudited consolidated statements of operations for each quarter have been prepared on the same basis as the annual consolidated financial statements included in the prospectus and reflect all normal and recurring adjustments that are, in our opinion, necessary for the fair presentation of the results of operations for the periods presented. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in the prospectus.

 

    Three Months Ended  
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
    September 30,
2018
    December 31,
2018
    March 31,
2019
    June 30,
2019
    September 30,
2019
 
   

(in thousands)

 

Revenue

                 

Subscription and transaction fees

  $ 12,365     $ 13,338     $ 14,921     $ 16,368     $ 18,170     $ 20,444     $ 22,112     $ 25,225     $ 28,548  

Interest on funds held for customers

    737       1,825       2,177       3,134       4,254       5,555       6,132       6,459       6,632  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    13,102       15,163       17,098       19,502       22,424       25,999       28,244       31,684       35,180  

Cost of revenue(1)

    4,413       4,395       5,006       5,558       6,341       7,175       7,914       8,488       9,147  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    8,689       10,768       12,092       13,944       16,083       18,824       20,330       23,196       26,033  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

                 

Research and development(1)

    4,206       4,391       4,415       4,974       5,424       6,154       7,899       9,447       11,515  

Sales and marketing(1)

    4,068       4,586       4,697       5,939       5,944       6,856       7,365       9,949       10,267  

General and administrative(1)

    3,367       3,449       4,444       4,774       5,937       6,404       7,904       8,953       10,535  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    11,641       12,426       13,556       15,687       17,305       19,414       23,168       28,349       32,317  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (2,952     (1,658     (1,464     (1,743     (1,222     (590     (2,838     (5,153     (6,284

Other (expense) income, net

    (37     70       273       326       317       686       734       596       639  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (2,989     (1,588     (1,191     (1,417     (905     96       (2,104     (4,557     (5,645

Income taxes

    6       -         -         4       (21     (6     (70     (59     51  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (2,995   $ (1,588   $ (1,191   $ (1,421   $ (884   $ 102     $ (2,034   $ (4,498   $ (5,696
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes stock-based compensation expenses as follows:

 

    Three Months Ended  
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
    September 30,
2018
    December 31,
2018
    March 31,
2019
    June 30,
2019
    September 30,
2019
 
   

(in thousands)

 

Cost of revenue

    25       16       16       21       69       42       93       127       148  

Research and development

    89       100       108       132       233       119       379       397       671  

Sales and marketing

    125       118       111       154       166       122       299       335       382  

General and administrative

    131       131       135       133       139       311       605       646       1,075  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 370     $ 365     $ 370     $ 440     $ 607     $ 594     $ 1,376     $ 1,505     $ 2,276  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Three months ended  
    September 30,
2017
    December 31,
2017
    March 31,
2018
    June 30,
2018
    September 30,
2018
    December 31,
2018
    March 31,
2019
    June 30,
2019
    September 30,
2019
 

Revenue

                 

Subscription and transaction fees

    94%       88     87     84     81     79     78     80     81

Interest on funds held for customers

    6%       12     13     16     19     21     22     20     19
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    100     100     100     100     100     100     100     100     100

Cost of revenue

    34%       29     29     28     28     28     28     27     26
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    66%       71     71     72     72     72     72     73     74
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

                 

Research and development

    32%       29     26     26     24     24     28     30     33

Sales and marketing

    31%       30     27     30     27     26     26     31     29

General and administrative

    26%       23     27     25     26     25     28     28     30
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    89%       82     80     81     77     75     82     89     92
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (23)%       (11 )%      (9 )%      (9 )%      (5 )%      (3 )%      (10 )%      (16 )%      (18 )% 

Other income, net

    -         1     2     2     1     3     3     2     2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (23)%       (10 )%      (7 )%      (7 )%      (4 )%      -         (7 )%      (14 )%      (16 )% 

Income taxes

    -         -         -         -         -         -         -         -         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (23)%       (10 )%      (7 )%      (7 )%      (4 )%      -         (7 )%      (14 )%      (16 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Revenue Trends

Our subscription and transaction fees in each of the quarters presented increased consecutively over all periods presented due primarily to the increase in the number of customers and the increase in average subscription and transaction fees per customer. Additionally, our transaction fees during the quarters ended June 30, 2019 and September 30, 2019 increased partially due to the increase in the adoption of new product offerings.

Our interest on funds held for customers in each of the quarters presented increased consecutively over all periods presented due primarily to the increase in the balance of customer funds held while payment transactions are clearing.

Quarterly Cost of Revenue and Gross Margin Trends

Our cost of revenue in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in transaction-related costs, which was the result of the increase in the number of customers and the increase in payment transactions that we processed, and the increase in costs directly associated to providing support to our customers.

Our gross margin during the quarter ended December 31, 2017 increased compared to the preceding quarter due primarily to the increase in our total revenue and the increase in our revenue mix. Our gross margin slightly increased during the quarter ended June 30, 2018 compared to the preceding quarters due primarily to the increase in our total revenue, which was higher relative to the increase in costs. Our gross margin had consecutively increased from the quarter ended June 30, 2019 due primarily to the increase in our total revenue, in particular the increase in adoption of new product offerings, and the increase in our revenue mix, in particular the increase in interest on funds held for customers.

 

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Quarterly Operating Expenses Trends

Our operating expenses in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in personnel-related costs, including stock-based compensation expense, as we invested in additional headcount quarter-over-quarter to support the growth of our business. Additionally, our professional and consulting fees, temporary staffing costs, and shared overhead costs increased consecutively over all periods due to the overall growth of our business. We also continued to increase our sales and marketing spend quarter over quarter, in particular advertising and promotional marketing expenses, as we continued to invest in promoting brand awareness.

As a percentage of total revenue, our operating expenses fluctuated in the quarters presented. Our operating expenses as a percentage of total revenue during the quarter ended September 30, 2018 and December 31, 2018 decreased compared to the respective preceding quarters due primarily to the leveraging of certain costs on relatively higher revenue, in particular due to the lower personnel-related costs as a percentage of total revenue resulting from the timing of hiring employees. Our operating expenses as a percentage of total revenue during the quarter ended June 30, 2019 increased compared to the preceding quarters due primarily to the increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company. Our operating expenses as a percentage of total revenue during the quarter ended September 30, 2019 increased compared to the preceding quarters due primarily to the increase in personnel-related costs, including stock-based compensation expense, due to the increase in headcount.

Quarterly Other Income Trends

Our other income (net) in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments.

Liquidity and Capital Resources

We have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock, bank borrowings, and utilization of cash generated from operations. As of September 30, 2019, our principal sources of liquidity are our cash and cash equivalents of $86.2 million, our available-for-sale short-term investments of $71.4 million, and funds available under our Senior Facilities Agreement (as defined below). Our cash equivalents are comprised primarily of money market funds and investments in debt securities with original maturities of three months or less. Our short-term investments are comprised primarily of investments in corporate bonds, asset-backed securities and U.S. Treasury securities with original maturities of more than three months to less than one year. Our Senior Facilities Agreement, which expires on June 28, 2022, allows us to borrow up to $50.0 million. We had no outstanding borrowings from our Senior Facilities Agreement as of September 30, 2019.

We believe that our cash, cash equivalents, available-for sale short-term investments, and funds available under our Senior Facilities Agreement will be sufficient to meet our working capital requirements for at least the next twelve months. To the extent existing cash, cash from operations, and amounts available for borrowing under the Senior Facilities Agreement are insufficient to fund future activities, we may need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of

 

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additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.

Cash Flows

Below is a summary of our consolidated cash flows (in thousands):

 

     Year Ended June 30,     Three months ended
September 30,
 
     2018     2019     2018     2019  

Net cash provided by (used in):

        

Operating activities

   $ (8,356   $ (3,949   $ (2,255   $ (2,380

Investing activities

     (335,421     (419,801     (104,019     (138,132

Financing activities

     326,282       491,655       99,181       136,455  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

   $ (17,495   $ 67,905     $ (7,093   $ (4,057
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash Used in Operating Activities

Our primary source of cash provided by our operating activities is our revenue from subscription and transaction fees. Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per type of transaction. We also generate cash from the interest earned on funds held in trust on behalf of customers while payment transactions are clearing.

Our primary uses of cash in our operating activities include payments for employee salary and related costs, payments to third parties to fulfill our payment transactions, payments to sales and marketing partners, and other general corporate expenditures.

Net cash used in operating activities increased to $2.4 million during the three months ended September 30, 2019 from $2.3 million during the three months ended September 30, 2018 due primarily to the increase in cash paid for our cost of services and operating expenses, primarily employee salary and related costs due to the increase in headcount, offset by the increase in cash received from subscription and transaction fees revenue, as well as the increase in cash received from interest on funds held for customers.

Net cash used in operating activities decreased to $3.9 million during fiscal 2019 from $8.4 million during fiscal 2018 due primarily to the increase in cash received from subscription and transaction fees revenue, as well as the increase in cash received from interest on funds held for customers, offset by the increase in cash paid for our cost of services and operating expenses, primarily employee salary and related costs due to the increase in headcount.

Net Cash Used in Investing Activities

Cash provided by our investing activities consists primarily of proceeds from the maturities and sale of corporate and customer fund available-for-sale investments. Cash used in our investing activities consists primarily of purchases of corporate and customer fund available-for-sale investments, purchases of property and equipment, and capitalization of internal-use software.

 

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Net cash used in investing activities increased to $138.1 million during the three months ended September 30, 2019 from $104.0 million during the three months ended September 30, 2018, due primarily to an increase in restricted cash and cash equivalents included in funds held for customers and an increase in purchases of property and equipment, offset by an increase in proceeds from the maturities and sale of corporate and customer fund available-for-sale investments.

Net cash used in investing activities increased to $419.8 million during fiscal 2019 from $335.4 million during fiscal 2018, due primarily to an increase in purchases of corporate and customer fund available-for-sale investments, an increase in restricted cash and cash equivalents included in funds held for customers, an increase in purchases of property and equipment and an increase in capitalized internal-use software, offset by an increase in proceeds from the maturities and sale of corporate and customer fund available-for-sale investments.

Net Cash Provided by Financing Activities

Cash provided by our financing activities consists primarily of increase in customer fund deposits liability, proceeds from the issuance of redeemable convertible preferred stock, exercise of stock options and bank borrowings. Cash used in our financing activities consists primarily of repayments of our bank borrowings.

Net cash provided by financing activities increased to $136.5 million during the three months ended September 30, 2019 from $99.2 million during the three months ended September 30, 2018, due primarily to an increase in customer fund deposits liability, offset by payments of deferred offering costs and deferred debt issuance costs.

Net cash provided by financing activities increased to $491.7 million during fiscal 2019 from $326.3 million during fiscal 2018, due primarily to an increase in customer fund deposits liability, proceeds from the issuance of Series H redeemable convertible preferred stock and an increase in proceeds from exercise of stock options, offset by an increase in repayments of bank borrowings.

Credit Facilities

On June 28, 2019, we entered into a Senior Secured Credit Facilities Credit Agreement (Senior Facilities Agreement) with Silicon Valley Bank for a revolving credit facility of up to $50.0 million, which amount may be increased by up to $25.0 million upon request and subject to conditions. Under the Senior Facilities Agreement, Bill.com, LLC is the borrower and Bill.com Holdings, Inc. is the guarantor. The Senior Facilities Agreement expires on June 28, 2022 and is secured by substantially all of our assets.

Borrowings under the Senior Facilities Agreement are subject to interest, determined as follows: (a) Eurodollar loans shall bear interest at a rate per annum equal to the Eurodollar rate plus the applicable margin of 1.75% or 2.75%, depending on company cash balances (Eurodollar rate is calculated based on the ratio of Eurodollar Base Rate, which is determined by reference to ICE Benchmark Administration London Interbank Offered Rate (LIBOR), but not less than 0%) or (b) Alternate Base Rate (ABR) loans shall bear interest at a rate per annum equal to the ABR minus the applicable margin of 0.25% or 1.25% depending on company cash balances (ABR is equal to the highest of (i) the prime rate, (ii) the Federal Funds Effective Rate plus 0.50%, and (iii) the Eurodollar rate plus 1.25%).

The Senior Facilities Agreement requires us to comply with certain restrictive covenants. As of June 30, 2019 and September 30, 2019, we were in compliance with the loan covenants.

 

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We had no outstanding borrowings under the Senior Facilities Agreement as of June 30, 2019 and September 30, 2019.

On October 5, 2017, we entered into an Amended and Restated Loan and Security Agreement (Loan and Security Agreement) with Silicon Valley Bank providing for a term loan of up to $10.0 million and a revolving line of credit of up to $15.0 million. The Loan and Security Agreement was terminated on June 28, 2019, upon our entry into the Senior Facilities Agreement.

Contractual Obligations and Other Commitments

Our principal commitments consist of obligations under operating leases for office space, a strategic partnership agreement to promote our platform, and agreements with various third parties to purchase software and maintenance services. The following table summarizes our commitments to settle contractual obligations in cash as of June 30, 2019 (in thousands):

 

     Total      Less than
1 year
     1 - 3
years
     3 - 5
years
     More than
5 years
 

Operating lease commitments(1)

   $ 5,677      $ 2,611      $ 1,246      $ 1,310      $ 510  

Partnership and other commitments(2)

     18,724        3,471        5,566        4,187        5,500  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,401      $ 6,082      $ 6,812      $ 5,497      $ 6,010  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Consists of future non-cancellable minimum rental payments under operating leases for our offices.

(2)

Consists of future minimum payments under a strategic partnership agreement and for purchases of software and maintenance services.

Off-Balance Sheet Arrangements

As of June 30, 2019 and September 30, 2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Quantitative and Qualitative Disclosures about Market Risk

Our overall investment portfolio is comprised of corporate investments including company operating cash and cash equivalents, and short-term marketable securities. Customer funds assets are funds that have been collected from customers, but not yet remitted to the applicable supplier or deposited into our customers’ accounts.

Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for corporate operating purposes. All of our short-term fixed-income securities are classified as available-for-sale securities.

Our customer funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Customer funds assets are invested in money market funds that maintain a constant market price, other cash equivalents, and highly liquid, investment-grade fixed income securities, with maturities of three months or less or more than three months to one year at the time of purchase. The types of investments that we can make with the fund balances are governed by our investment policy and restrictions on permissible investments or other similar restrictions in applicable state money transmitter laws.

 

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As part of our customer funds investment strategy, we use the daily collection of funds from our customers to satisfy other unrelated customer funds obligations, rather than liquidating previously-collected customer funds that have already been invested in available-for-sale securities. We minimize the risk of not having funds collected from a customer available at the time the customer’s obligation becomes due by collecting the customer’s funds in advance of the timing of payment of the customer’s obligation. As a result of this practice, we have consistently maintained the required level of customer funds assets to satisfy all of our obligations.

There are inherent risks and uncertainties involving our investment strategy relating to our customer funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our customer funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our customer funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our customer funds obligations by maintaining a portion of our customer funds in demand deposit accounts and money market funds that maintain a constant market price, as well as maintaining access to other sources of liquidity, including our corporate cash balances and available borrowings under our Senior Facilities Agreement. In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.

Interest Rate and Credit Risk

We are exposed to interest-rate risk relating to our investment portfolio and funds of our customers that we process through our bank accounts. Our investment portfolio consists principally of interest-bearing bank deposits, money market funds, certificates of deposit, corporate bonds, asset-backed securities, and U.S. Treasury securities. Funds that we hold for customers are held in non-interest and interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper and other corporate notes, and U.S. Treasury securities. We recognize interest earned from funds held for customers as revenue. We do not pay interest to customers. Factors that influence the rate of interest we earn include the short-term market interest rate environment and the weighting of balances by security type. The annualized interest rate earned on our investment portfolio and funds held for customers increased to 2.05% during fiscal 2019 from 1.03% during fiscal 2018. The annualized interest rate earned on our investment portfolio and funds held for customers increased to 2.02% during the three months ended September 30, 2019 from 1.81% during the three months ended September 30, 2018. Our investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. Unrealized gains or losses on our marketable debt securities are primarily due to interest rate fluctuations as a result of a change in market interest rates compared to interest rates at the time of purchase. We account for both fixed and variable rate securities at fair value with unrealized gains and losses recorded in accumulated other comprehensive income until the securities are sold. Based on current investment practices, a change in the Federal Funds interest rate of 100 basis points would have changed our interest income from our short-term investment portfolio by approximately $1.3 million and our interest on funds held for customers by approximately $9.3 million on the average balances for fiscal 2019 of $133 million in Company investments and $1.1 billion in customer funds, respectively. Such a change in the Federal Funds interest rate would have changed our interest income from our short-term investment portfolio by approximately $0.4 million and our interest on funds held for customers by approximately $3.4 million on the average balances during the three months ended September 30, 2019 of $159.2 million in Company investments and $1.3 billion in customer funds, respectively. In addition to interest rate risks, we also have exposure to risks associated with changes in laws and regulations that may affect customer fund

 

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balances. For example, a change in regulations that restricts the permissible investment alternatives for customer funds would reduce our interest earned revenue.

We are also exposed to interest-rate risk relating to future bank borrowings. As of June 30, 2019 and September 30, 2019, our Senior Facilities Agreement provides a revolving credit facility of up to $50.0 million that may be increased by up to $25.0 million, subject to conditions, incurring interest expense at a floating market rate plus a contractual spread. However, we had no outstanding borrowings under the Senior Facilities Agreement as of June 30, 2019 and September 30, 2019.

We are exposed to credit risk in connection with our investments in available-for-sale marketable securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade securities as rated by Moody’s, Standard & Poor’s or Fitch, by investing only in securities that mature in the near-term, and by limiting concentration in commercial paper. Investment in securities of issuers with short-term credit ratings must be rated A-2/P-2/F2 or higher. Investment in securities of issuers with long-term credit ratings must be rated A- or A3, or higher. Investment in asset-backed securities and money market funds must be rated AAA or equivalent. Investment in repurchase agreements will be at least 100 percent collateralized with securities issued by the U.S. government or its agencies. Securities in our corporate portfolio may not mature beyond two years from purchase, and securities held in our customer fund accounts may not mature beyond 13 months from purchase. No more than 5% of invested funds, either corporate or customer, may be held in the issues of a single corporation.

We are also exposed to credit risk related to the timing of payments made from customer funds collected. We typically remit customer funds to our customers’ suppliers in advance of having good or confirmed funds collected from our customers. Our customers generally have three days to dispute transactions and if we remit funds in advance of receiving confirmation that no dispute was initiated by our customer, then we could suffer a credit loss. We mitigate this credit exposure by leveraging our data assets to make credit underwriting decisions about whether to accelerate disbursements, managing exposure limits, and various controls in our operating systems.

Foreign Currency Exchange Risk

We are exposed to foreign currency exchange risk relating to our cross-border payments, which allows customers to pay their international suppliers in foreign currencies. When customers make a cross-border payment, customers fund those payments in U.S. dollars based upon an exchange rate that is quoted on the initiation date of the transaction. Subsequently, when we remit those funds to our customers’ suppliers through our global payment partner, the exchange rate may differ, due to foreign exchange fluctuation, compared to the exchange rate that was initially quoted. Our transaction fees to our customers are not adjusted for changes in foreign exchange rates between the initiation date of the transaction and the date the funds are remitted. If the value of the U.S. dollar weakens relative to the foreign currencies, this may have an unfavorable effect on our cash flows and operating results. We do not believe that a 10% change in the relative value of the U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results.

Critical Accounting Policies and Estimates

Our consolidated financial statements 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 consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical

 

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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.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue recognition—Our contracts with financial institutions require us to provide multiple services comprising subscription, transaction and implementation services. We identify performance obligations in these contracts by evaluating whether individual services are distinct. We consider a service distinct if it is (i) capable of being distinct and (ii) distinct within the context of the agreement. Services that are not distinct are combined into a single performance obligation. The evaluation of whether a service is distinct involves judgment and could impact the timing of revenue recognition. We determine the transaction price in these contracts based on the amount of consideration we expect to be entitled to, which are typically variable. The transaction price is then allocated to each separate performance obligation on a relative standalone selling price basis. We determine the standalone selling prices based on the overall pricing objectives, taking into consideration the adjusted market assessment approach and the expected cost plus margin approach. Each performance obligation is analyzed to determine if it is satisfied over time or at a point in time. Our performance obligations are generally recognized as revenue over the period each performance obligation is satisfied. Our implementation services included in these contracts consist of the development of interfaces between our platform and the financial institution’s platform and the development of graphical user interfaces within the financial institution’s platform. The financial institution’s customers cannot access online bill pay services until implementation is complete and the financial institution has provided acceptance of the implementation services. As a result, initial implementation services are not capable of being distinct from subscription and transaction processing services, and are therefore combined into a single performance obligation. The ability of financial institution customers to renew contracts without having to pay up-front implementation fees again provides them a material right. Material rights, which have not been significant to date, are treated as separate performance obligations and are recognized over the expected period of benefit.

We recognize revenue over time using an attribution method that best reflects the measure of progress in satisfying the performance obligation. The attribution method used involves judgment and impacts the timing of revenue recognition. We recognize revenue on annual and monthly subscription contracts based on the proportion of transactions processed compared to the total estimated transactions to be processed over the contract period.

Deferred costs—Deferred costs include deferred sales commissions that are incremental costs of obtaining customer contracts. We amortize deferred sales commissions ratably over the estimated period of our relationship with new customers of four to six years. Based on historical experience, we determine the average life of our customer relationship by taking into consideration our customer contracts and the estimated technological life of our platform and related significant features.

Stock-based compensation—We use the grant-date fair-value-based measurements for stock-based compensation using the Black-Scholes option-pricing model. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years, reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate the forfeiture rate based on the historical experience for annual grant years where the majority of the vesting terms have been satisfied.

 

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The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—Since we are privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the lifecycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Expected dividend yield—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock.

Common Stock Valuation—Historically, for all periods prior to this offering, the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our Board of Directors with input from management and contemporaneous third-party valuations. We believe that our Board of Directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market for our common stock, our Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:

 

   

contemporaneous valuations of our common stock performed by independent third-party appraisers;

 

   

our actual operating results and financial performance;

 

   

conditions in the industry and economy in general;

 

   

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

 

   

the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

 

   

equity market conditions affecting comparable public companies and the market performance of comparable publicly traded companies;

 

   

the U.S. and global capital market conditions; and,

 

   

the lack of marketability of our common stock and the results of independent third-party valuations. Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

In valuing our common stock, our Board of Directors determined the equity value of our business generally using the income approach and the market comparable approach valuation methods. When applicable due to a recent preferred stock offering, the prior sale of company stock method was also utilized.

 

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The income approach estimates value based on the expectation of future cash flows that a company will generate—such as cash earnings, cost savings, tax deductions, and the proceeds from disposition. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar lines of business as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. In addition, we also considered an appropriate discount adjustment to recognize the lack of marketability due to being a closely-held entity.

The market comparable approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined which is applied to the subject company’s operating results to estimate the value of the subject company. In our valuations, the multiple of the comparable companies was determined using a ratio of the market value of invested capital less cash to each of the last twelve-month revenues and the forecasted future twelve month revenues. The estimated value is then discounted by a non-marketability factor because stockholders of private companies do not have access to trading markets similar to those enjoyed by stockholders of public companies which impacts liquidity. To determine our peer group of companies, we considered public enterprise cloud-based application providers and select those that are similar to us in size, stage of lifecycle, and financial leverage.

The resulting equity value is then allocated to each class of stock using an Option Pricing Model (OPM). The OPM treats common stock and redeemable convertible preferred stock as call options on an equity value, with exercise prices based on the liquidation preference of our redeemable convertible preferred stock. Under this method, our common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preference at the time of a liquidity event, such as a merger or sale, assuming we have funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is considered to be a call option with a claim at an exercise price equal to the remaining value immediately after the redeemable convertible preferred stock is liquidated.

Beginning in December 2018, the resulting equity value was allocated to each class of stock using a Probability Weighted Expected Return Method (PWERM). The PWERM involves the estimation of future potential outcomes of our company as well as values and probabilities associated with each respective potential outcome. The common stock per share value determined using this approach is ultimately based upon probability-weighted per share values resulting from the various future scenarios, which can include an IPO, merger or sale, dissolution, or continued operation as a private company. There was a very wide range of possible future exit events for the “remain private scenario” in our PWERM analysis, and forecasting specific probabilities and potential values associated with any future events would be highly speculative and imprecise for this scenario. As such, we relied primarily upon the OPM in order to allocate the equity value among the stockholders for the “remain private scenario” in our PWERM analysis.

In some cases, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation determined pursuant to one of the methods described above or a straight-line calculation between the two valuation dates. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

After the completion of this offering, our Board of Directors will determine the fair value of each share of underlying common stock based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

 

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Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included elsewhere in this prospectus for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this prospectus.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We 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 earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. During fiscal 2018, we early adopted ASU 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606) effective July 1, 2017 using the full retrospective method as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.

 

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A LETTER FROM BILL.COM CEO AND FOUNDER RENÉ LACERTE

Dear Prospective Shareholder,

Thank you for your interest in Bill.com. I wrote this letter to help you understand the opportunity we have ahead of us, the large problem we are solving, and the power of what we have built for our customers.

Since founding Bill.com, I have been motivated by the desire to build solutions that make a real difference for small and mid-sized businesses (SMBs). At Bill.com, we have merged software, payments and artificial intelligence to move the back-office of SMBs into the cloud. We have created an end-to-end software platform that simplifies, digitizes, and automates the repetitive and manual tasks involved in paying suppliers and getting paid by clients. Our unified platform weaves software and payments seamlessly together, resulting in better, more efficient and reliable financial operations.

Financial software solutions are in my DNA. My parents and grandparents owned their own businesses, each of them using software to automate the processes surrounding data processing and payroll. After working for an accounting firm post-college, I returned to my parents’ business where I worked in all parts of the operation and experienced firsthand the daily challenges of managing a small business back-office.

I subsequently joined Intuit with the idea of building something that could make a difference for small businesses like my family’s. I was part of the group that built consumer bill pay and was one of the founding team members who launched the connected payroll business. The success of those initiatives gave me the confidence to co-found my first company, PayCycle, in 1999. Over the next decade, PayCycle became one of the fastest growing online payroll services in America and was acquired by Intuit in 2009. This Intuit platform continues to grow, and was recently rated the best online payroll system for small businesses by Business.com.

It was the running of the day-to-day back-office at PayCycle that drove home how difficult it was to manage a business successfully. I was drowning in paper: snail-mailed bills, filing cabinets haphazardly filled with bids and contracts, sticky notes with questions about invoices left on people’s desks, and check stock. In reality, the paper was a just symptom of a broader problem: how inefficient back-offices are at small companies. PayCycle’s accounts payable and accounts receivable workflow processes were no different than the ones my grandfather had used 60 years earlier when he started his first business. Everything about managing company cash flow was tedious, manual and complicated.

Building one of the first internet payroll solutions, I realized that cloud-based software could change much more than how employees got paid: it could change how the entire back-office worked. The more I thought about it, the more excited I got. I left PayCycle and started Bill.com in 2006 with the mission of making it simple to connect and do business.

Any business transaction is like a coin: heads on one side, tails on the other. One company’s debit is another’s credit. I built Bill.com with this holistic transaction lifecycle in mind, integrating workflow automation, accounting, and payments into a single platform, accessible with a single connection. This has allowed us to automate operations that no one had ever given any thought to changing or improving for SMBs, delivering transformative time and cost-savings.

I believe we have built a business that is not only making an impact today, but offers several avenues for growth in the future. And this is just the beginning. The Bill.com team continues to look forward, creating new ways to leverage the capabilities we have built and the data we have collected to

 

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help our customers become even more efficient and productive. Using AI, we are eliminating data entry, preventing duplicate payments, and providing our customers with actionable insights to inform their business decisions. We are convinced that we have only scratched the surface of this new technology, and I am thrilled about the potential that lies ahead.

In closing, as a serial entrepreneur, I’d like to share my philosophy on building successful companies. Being an entrepreneur requires a perfect balance of impatience and patience. The impatience compels you to fix something that’s broken, and the patience keeps you iterating on your solution, long after others would have quit. In thirteen years, I’ve stayed focused on listening to our customers and innovating to improve their experience with our platform.

It is the success of today that drives us toward even better outcomes tomorrow. Business is personal, and for those that become shareholders, I appreciate your trust and confidence in my ability to take the company to the next level.

Thank you for taking the time to learn more about Bill.com.

Sincerely,

René Lacerte

CEO and Founder

 

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BUSINESS

Overview

Our mission is to make it simple to connect and do business.

We are champions of small and midsize businesses (SMBs). We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs. By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.

Our purpose-built, artificial-intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Customers use our platform to generate and process invoices, streamline approvals, send and receive payments, sync with their accounting system, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, and payment processors, enabling our customers to access these mission-critical services through a single connection. As a result, we are central to an SMB’s accounts payable and accounts receivable operations.

We Make Paper-based Manual Transaction Processing Obsolete

We believe we have a significant opportunity to help millions of SMBs improve their financial operations. Most SMBs are still dependent on manual accounts payable and accounts receivable processes: mailing invoices, printing paper checks, waiting for payments, and storing paper in filing cabinets. According to the SMB Technology Adoption Index, in 2016 over 90% of SMBs surveyed still relied on paper checks to make and accept business-to-business payments. Manual processes are time-consuming, inefficient, and costly. A survey of back-office employees by Levvel Research points to process issues, such as long approval cycles and missing information on invoices, as the leading cause of late payments and missed discounts. Customers who adopt our platform benefit from streamlined back-office processes, as evidenced by our customers’ electronically exchanging more than 8,000 messages per day, approving more than 2.4 million bills per month, and storing almost 45 million documents per year, collectively, as of June 30, 2019.

Today, over 81,000 customers trust our platform to manage their financial workflows and process their payments, which totaled over $70 billion for fiscal 2019, and nearly $22 billion for the three months ended September 30, 2019. As of June 30, 2019, we had over 1.8 million network members. We define network members as our customers plus their suppliers and clients with accounts on our platform. Our network members entrust us with their bank account details, enabling them to connect, invoice, pay, and get paid electronically.

Because many of our customers use our platform to manage their end-to-end financial workflows, we have visibility into the entire transaction lifecycle. We leverage this transaction data to provide our customers with insights into their back-office processes and business relationships, which allows our customers to make more informed financial decisions. Our customers benefit from our platform in a wide variety of ways. Here are a few of their stories:

“Bill.com automatically enters our invoices, and that made a huge difference for me when I was the only accounting person on staff. I also love that the approver system and audit trail helps me respond to any inquiries that we receive about a payment. In 2018, we paid 1,800 bills through Bill.com, a 63% increase over the previous year. Without Bill.com we would have had to hire at least one more full-time accounts payable person to print out all of those invoices and manually cut checks. Bill.com also enables us to pay international suppliers. Given the number of bills we pay, as

 

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well as the currency amount, it took a lot of administration time for the complex tasks required when paying through banks. With Bill.com, it’s a one-click solution. It’s a lifesaver.”

-Jurie Victor, Finance Manager at Spikeball (Chicago, IL), a sports equipment company

“By moving to Bill.com we’ve decreased the time it takes to complete our accounts payable processes by 60%! With Bill.com we can trust that our checks will be issued accurately and on time after we hit the ‘Pay’ button and we are confident that all of our direct deposits will be in our customers’ accounts within 1-2 days.”

- Blake Seidman, Controller at TED Conferences (New York, NY), the organization behind TED Talks

“We had no bill payment clients before adopting Bill.com four years ago, primarily because we had no cost-effective method of processing bills on their behalf. With Bill.com, we were able to offer a service that brings in over $250,000 a year in revenue. The core of our business is to use best-of-breed software to build our firm and our services, and Bill.com’s elegant technology fits this profile and has become a fundamental part of our business plan.”

- Matthew May, Founder of Acuity (Atlanta, GA), a mid-size accounting firm

“We use both the accounts receivable and accounts payable features of Bill.com, which helps us manage our cash flow for our property-management business. Bill.com allows us to automatically withdraw rent payments directly from tenant banking accounts and schedule payments to vendors and property owners. This gives us a competitive advantage because we can pay owners faster than other property-management companies in the area. It also means we have more time to spend developing new business instead of collecting rent and paying bills. I check the Bill.com system every day, because it brings pertinent information to the surface that I need to act on and helps me be more productive.”

- Mark Lindsay, Managing Director at Lindsay Leasing (Sarasota, FL), a family-run property management company

We Partner with Many of the Most Trusted Accounting Firms and Financial Institutions in the United States

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales, and indirectly through accounting firms and strategic partners. As of September 30, 2019, our partners included some of the most trusted brands in the financial services business, including more than 70 of the top 100 accounting firms and several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express. As we add customers and partners, we expect our network to continue to grow organically.

We have grown and scaled our business operations rapidly in recent periods. Our total revenue was $64.9 million and $108.4 million for fiscal 2018 and 2019, respectively, an increase of 67%. For the three months ended September 30, 2018 and 2019, our total revenue was $22.4 million and $35.2 million, respectively, an increase of 57%. We incurred net losses of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively. For the three months ended September 30, 2018 and 2019, we incurred net losses of $0.9 million and $5.7 million, respectively.

Industry Trends

Back-Office Financial Workflows Are Essential to All Businesses

The transaction lifecycle—encompassing all processes that enable businesses to pay and get paid—is critical to companies of all sizes, in all industries and geographies. Businesses begin the transaction lifecycle by creating and mailing invoices, approving bills, and making payments, and end

 

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the process by recording and reconciling transactions in an accounting system. The ability to manage this critical set of activities efficiently and effectively is key for any business. Yet, for most businesses, cash flow is managed in a complex, inefficient, and all too often, paper-based manner.

SMBs Are Underserved by Current Software Solutions

We believe SMBs, despite comprising a large part of the economy, are underserved by existing financial software solutions. Instead of developing purpose-built solutions, many software providers attempt to sell solutions designed for consumers or enterprises, which struggle to gain traction in the SMB market. Solutions for consumers are too simple, while enterprise solutions are typically too complex and expensive. Additionally, these products generally do not integrate with other systems, requiring SMBs to piece together an expensive patchwork of individual products to meet their needs. Further, SMBs are often resource-constrained and focused on their day-to-day operations, making them difficult to reach through traditional sales and marketing approaches.

SMBs remain largely underserved by current software solutions, despite an SMB Group survey showing that 74% of SMBs believe using new technology effectively is key to their survival. We believe we have a greenfield opportunity to provide SMBs with a platform to automate their back-office financial operations.

SMBs Generally Rely upon Antiquated and Inefficient Processes

SMBs generally handle their financial workflows the same way they have for decades. The lack of an end-to-end financial software platform tailored for SMBs results in a back office that is:

 

   

Manual and Cumbersome.    Legacy workflows require people to be involved at every stage of the transaction lifecycle. According to a 2019 survey by Levvel Research, the number one workflow process challenge reported by back-office employees was the level of manual data entry required and the inefficiency inherent in traditional processes. It simply takes too long and costs too much.

 

   

Inaccurate and Error-Prone.    Legacy processes rely upon disparate systems throughout the transaction lifecycle, introducing the risk of improperly recorded transactions, unreconciled items, or late payments and associated penalty fees. Missing information on invoices was cited as a top reason for late payments and missed discounts, according to a 2018 Levvel Research survey.

 

   

Paper-Based and Not Secure.    Traditional financial processes are dependent on paper throughout the transaction lifecycle, including mailed invoices, signatures on documents indicating approval to pay, and the issuance of physical checks. According to a survey conducted by RPMG Research, the estimated full cost of invoice processing and payments by check is $39 per payment. Further, check fraud is a universal problem in the United States – according to a 2018 study by AFP Payments Fraud and Control Survey, 74% of organizations surveyed experienced check fraud in 2017. This was the highest incidence of fraud across all payment methods, including wires, credit cards, and automated clearing house (ACH) payments. Unlike enterprises, SMBs generally lack the tools and budget to invest in sophisticated fraud prevention measures.

 

   

Lacking Visibility and Data.    Legacy software solutions leave businesses with limited visibility into their current and future cash position as well as their accounts payable and accounts receivable workflows. Many SMBs also lack data insights and tools to track usage, spending trends, and cash flows.

We believe SMBs deserve and are ready to adopt a modern, efficient, cloud-based offering that meets their needs.

 

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Our Solution

Our cloud-based, intelligent platform was purpose-built to simplify life for SMBs. Our end-to-end solution automates the back-office processes of generating and processing invoices; receiving and approving bills; collecting and disbursing funds; and completing reconciliation. We provide businesses with both a unified and mobile platform to pay their suppliers and collect payments from their clients. In effect, we act as a system of control for their accounts payable and accounts receivable activities.

Our platform frees our customers from cumbersome legacy financial processes and provides the following key benefits:

 

   

Automated and Efficient.    Our AI-enabled platform helps our customers pay their bills efficiently and get paid faster. For example, our Intelligent Virtual Assistant (IVA) streamlines the transaction lifecycle by automatically capturing data from an incoming invoice and prepopulating the critical data fields that an accounts payable clerk would typically key-in manually, saving the SMB time and money. IVA also detects duplicates, flagging invoices that a customer should scrutinize before approving a duplicative payment.

 

   

Unified, Integrated, and Accurate.    We provide a platform that connects our customers to their suppliers and clients. Our platform integrates with popular accounting software solutions, banks, and payment processors, enabling our customers to access all these mission-critical business partners through a single connection. Because we provide a unified view, customers can more easily find inconsistencies and inaccuracies, and fix them quickly. Through these integrations, we synchronize all customer-initiated changes between the systems, so that our customers do not have to create files to update or keep their various systems in-balance. We automate financial workflows through the entire transaction lifecycle, and provide SMBs the functionality of an enterprise business infrastructure, at a fraction of the cost.

 

   

Digital and Secure.    Our platform securely stores over 185 million documents for our customers. With our platform, SMBs do not need to worry about manually collecting and storing sensitive supplier and client information, including bank account details. We enable secure connections and storage of sensitive supplier and client information and documents, such as invoices and contracts, and make them accessible to authorized users through our cloud-based application, on any device.

 

   

Visible and Transparent.    With our platform dashboard, customers can easily view their transaction workflows. They can see which bills have been approved, what payments await approvals, and what cash has been received. Progress bars show our accounts receivable customers when an invoice has been sent, been viewed by the recipient, payment scheduled, and funds received. This visibility helps SMBs gain more insight into their financial operations and manage their cash flows intelligently.

Our Opportunity

SMBs represent a significant and critical component of the U.S. economy. SMBs are businesses with fewer than 500 total employees, as defined by the Small Business Administration. In 2018, there were approximately 30 million SMBs in the United States, which provided employment for over 47.5% of U.S. workers and were responsible for a third of goods traded by value. While 24 million of these SMBs are sole-proprietors, we focus on serving the over six million employer firms. SMBs large enough to have employees tend to have a greater need for more advanced accounts payable and accounts receivable processes in their back offices.

 

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Globally, there were approximately 20 million small and medium enterprises (SMEs) registered in the SME Finance Forum’s 2019 database.

We estimate the annual addressable market for the services we offer today to be $30 billion globally and $9 billion domestically. We derive this estimate by multiplying our average fiscal 2019 revenue per customer of $1,500 by the 20 million SMEs globally and 6 million domestic employer firms.

In addition, we believe we have the following incremental monetization opportunities, including to:

 

   

expand our target market to include sole proprietors and larger companies;

 

   

enter international markets;

 

   

sell additional solutions or products on our platform; and

 

   

capture more of the overall business-to-business payments flow from new and existing customers.

According to IDC, in 2019 small and lower-midsize businesses will spend approximately $65 billion on software in the U.S. We believe that we are well positioned to capture a meaningful portion of that spend as we increase the breadth of our platform to sell additional solutions or products.

According to a 2018 Mastercard report, North American companies make approximately $25 trillion of business-to-business payments annually, and, according to Deloitte, the United States market for SMB payments is expected to exceed $9 trillion in 2020. Over 90% of SMBs still rely on paper checks, according to a survey by the SMB Technology Adoption Index. As more SMBs move to digital payments, we believe we are well-positioned to capitalize on this evolution.

Our Go-to-Market Strategy

We seek to acquire customers in an efficient manner. We market our platform directly to businesses through online digital marketing and referral programs and indirectly by leveraging partnerships with accounting firms, financial institutions, and accounting software companies.

Direct-to-SMBs

Our direct-to-SMB strategy leverages digital customer acquisition tools and techniques and is supported by efficient inside sales capabilities. We also build awareness through direct interaction at industry trade shows and by word of mouth. In a 2019 customer survey we conducted, half of new customer respondents indicated they first heard about us because they used our platform at a prior company, or heard about us through a colleague. In addition, new SMBs are continuously being introduced to our platform’s value proposition through our 1.8 million network members as of June 30, 2019.

Indirect through Accounting Firms and Strategic Partners

Accounting Firms

Accountants are very important to SMBs. Since our inception, we have focused on providing accounting firms with tools to better manage and support their clients. Our accountant-specific tools help firms grow their client advisory services practices, establish a competitive advantage, and satisfy and retain their SMB clients. With our platform, the same accounting firm staff can serve more clients—and serve them more profitably. We partner with more than 70 of the top 100 accounting firms, and enable over 4,000 accounting firms across the country to deliver more value

 

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to their customers every day. As a result of this compelling value proposition, many of our customers are first introduced to us through their accountants.

Financial Institutions

SMBs look to financial institutions for digital solutions for end-to-end cash flow management. As a result, many of those financial institutions turn to us to meet their customers’ needs. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our directly-acquired customers. We are currently integrated with several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express. These partners embed our platform, typically on a white-label basis, into their online banking solutions, making our products available to millions of their clients.

Accounting Software Companies

We are integrated with Intuit QuickBooks, making our features available to millions of SMBs. Customers can seamlessly access our platform within QuickBooks Online, making it easy to manage their accounting activities and back-office workflows. In addition, we have referral relationships with several other popular accounting software providers, including Oracle NetSuite and Sage Intacct.

What Sets Us Apart

 

   

Purpose-Built for SMBs.    We understand the challenges SMBs experience each and every day running their businesses. From invoice image recognition and automated data entry, to intelligent approval routing, payment disbursement, and collections, and accounting system reconciliation, our unified platform provides SMBs with core functionality and value-added services generally reserved for larger companies. Our user-centric design provides our customers with the ease-of-use they are accustomed to with consumer applications.

 

   

Diverse Distribution Channels.    We leverage both direct and indirect channels to efficiently reach our target market. Our trusted brand attracts customers directly through our website, while accounting firms sell our platform to their SMB clients. Similarly, our financial institution partners distribute our platform under their brand, providing us with access to millions of businesses. Finally, our integration into Intuit’s accounting software positions us advantageously as a financial software solution of choice for SMBs using QuickBooks Online. While these partners require an initial integration investment, a go-to-market flywheel takes effect as our partners accelerate the delivery of our platform across their customer bases with minimal incremental investment from us.

 

   

Large and Growing Network of Connected Businesses.    As accounts receivable customers issue invoices or accounts payable customers pay bills on our platform, they connect to their clients and suppliers, driving an organic expansion of our network. Once we connect an SMB with its clients and suppliers and enable both parties to collaborate and transact electronically, we become an integral tool to the back-office operations. This drives a powerful network effect, aiding our customer acquisition efforts by increasing the number of businesses connected to our platform, which then become prospects.

 

   

Large Data Asset.    We have a large data asset as a result of processing millions of documents and billions of dollars in business payments annually for our customers. By leveraging our AI and machine learning capabilities, we generate insights from this data that drive product innovation. For example, we observed customers recording payments to

 

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non-United States suppliers on our platform, but executing those transactions through other financial institutions. As a result, we introduced cross-border payments, confident that there was an opportunity among our existing customer base to address their need for international payments in addition to domestic payments. Since introducing cross-border payments, we have disbursed over $500 million for our customers, demonstrating our ability to gain further share of wallet from our existing customer base.

 

   

Risk Management Expertise.    In addition to leveraging our data and machine learning capabilities for product innovation, our data asset and technology drives our risk engine. We move billions of dollars of customer funds monthly, and it is critical to our business model that we keep those funds and our customers’ data safe. Every customer who enrolls and transacts on our platform benefits from our risk management capability. We believe that our risk engine, built in-house and trained upon millions of business ACH, check, card, and wire transactions, provides us with a competitive advantage.

Because we move funds on behalf of our customers, we have become licensed as a money transmitter and regulated by both state and federal entities. The decision to acquire licenses illustrates our commitment to operating in a safe, secure, and transparent manner. It also provides us with the ability to serve our customers directly with new payment offerings, creating revenue opportunities and operating leverage.

 

   

Experienced Management Team and Vibrant Culture.    Our management team has deep experience with SMBs, software-as-a-service (SaaS) companies, and financial institutions. We have built a strong culture where employees are tightly connected to our mission. We are passionate about our craft, dedicated to each other and our customers, humble to the core, authentic about who we are, and fun to be around. As of August 30, 2019, our Chief Executive Officer, René Lacerte, has a 98% approval rating on Glassdoor, which is indicative of the enthusiasm that our employees feel about our leadership and the culture our CEO has nurtured.

Our Growth Strategy

Key elements of our growth strategy include:

 

   

Acquire New Customers.    We believe there is an opportunity to further invest in sales and marketing activities to drive awareness and adoption of our platform by new customers. Our expanding ecosystem of strategic partners and accounting firms also provides us with a strong pipeline of SMB signups, as our partners promote our platform to their clients through their own marketing efforts. While there are millions of businesses in our network today, most are not currently customers. Many joined our network at the invitation of a Bill.com customer who wanted to pay them or be paid electronically. While we have converted some network members into paying subscribers, we believe we can increase conversion given the growth of our network to date and our efforts to increase functionality and engagement. While we intend to maintain our focus on SMBs, we also believe there is an opportunity for us to target sole proprietors and larger companies in the future.

 

   

Increase Adoption by Our Existing Customers.    As we become more integral to our customers’ daily business, we increase the number of our customers’ employees who become regular users. Over time, we also typically increase the number of payments processed per customer. We collect subscription revenue from our customers based on the number of enrolled users, as well as revenue from transaction fees and interest on customer funds from payments held in trust during clearing. We seek to expand these revenue streams as we introduce new products and services.

 

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Grow the Number of Network Members.    As customers connect with their suppliers and clients through our platform, our member network organically expands. As companies are added to our network, we leverage our data matching algorithms to present network recommendations to our customers. With a single click, our customers can accept network recommendations and do business with these members. This creates an organic network effect that improves the reach and visibility of our platform and powers our customer acquisition efforts. This network also introduces the potential for additional monetization opportunities.

 

   

Expand our Platform Capabilities.    We continue to invest in research and development to enhance the breadth and depth of our platform. We continue improving our artificial intelligence engine, which enables us to help our customers manage end-to-end financial workflows, predict trends and cash flow needs, and deliver more precise, targeted network recommendations. To reach larger SMBs where their policies require a more formal procurement process prior to a purchase, we have enabled purchase order creation, processing and further accounting software synchronization.

 

   

Expand Internationally.    In 2018, we enabled our customers to make cross-border payments, and now offer our United States-based customers the ability to disburse funds to over 130 countries through our platform. Looking ahead, we will seek to further extend our network and engage with customers worldwide. According to Mastercard’s Business Payments 2022 whitepaper, global business-to-business non-cash payments are expected to increase at a compound average growth rate of 6.5% through 2020, reaching 122.4 billion transactions.

Transaction Lifecycle Overview

SMBs suffer from antiquated and inefficient accounts payable and accounts receivable processes. To illustrate the magnitude of the challenge, we have provided a detailed overview of how legacy accounts payable and accounts receivable processes function below:

 

 

LOGO

 

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Accounts Payable Process

 

   

Business receives an invoice for goods or services purchased from a supplier. Invoices are often received by mail or electronically via email with a PDF attached.

 

   

An accounts payable employee logs the bill, notes its terms, and files it. Details contained on an invoice can be limited and/or unclear regarding the originating party and purchase details.

 

   

An accounts payable employee confirms the goods or services purchased were received as expected, and reviews the invoice for accuracy. This process can involve contacting other employees for confirmation of receipt and invoice approval.

 

   

If there are inaccuracies or complaints of non-receipt, the supplier must be contacted and the invoice corrected and re-issued.

 

   

Once validated as accurate, the accounts payable employee codes the transaction into the accounting system, makes any necessary adjustments, and an accounts payable journal entry is opened.

 

   

The bill is routed for approval of payment based on the business’s policies and established approvals workflow. For many SMBs, the final approval comes in the form of the owner’s signature on a check.

 

   

Once approved, the payment is initiated and sent to the supplier. This is most commonly a check.

 

   

Once the payment is sent, the accounts payable employee enters this information into the accounting system and the accounts payable liability is released.

 

   

The payment is received by the supplier and applied to its accounting system.

 

   

The general ledger of the accounting system is reconciled to its bank statements.

Accounts Receivable Process

 

   

An order is received from a client for goods or services.

 

   

An invoice is created with complete client information, order information, and payment and credit terms, which typically come from disparate information sources.

 

   

The invoice is sent to the client, often by mail or electronically via email with a PDF attachment.

 

   

An accounts receivable employee codes the transaction into the accounting system, makes necessary adjustments, and an accounts receivable journal entry is opened.

 

   

An accounts receivable employee separately tracks a variety of due dates related to early discounts and late payments.

 

   

An accounts receivable employee follows up with the customer to ensure receipt of the invoice and timely payment, as well as to manage any disputes related to invoice accuracy or customer dissatisfaction with the purchase.

 

   

The accounts receivable department receives payment in the form of paper check, ACH, credit card, or wire transfer.

 

   

An accounts receivable employee identifies the payment and matches it to the invoice that corresponds to goods or services sold. This can be time-consuming, as the data supporting the payment amount rarely arrives with the payment.

 

   

An accounts receivable employee enters the relevant transaction data to update the accounting system.

 

   

The general ledger of the accounting system is reconciled to its bank statements.

 

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Our Platform

Every business transaction has two sides: for accounts payable, a customer and a supplier; and for accounts receivable, a customer and a client. The same transaction can be viewed differently depending on the party; one company’s debit is another’s credit. We built our platform with that in mind, leveraging the fact that we can see both sides, easily connect both parties, and promote the rapid exchange of information. This builds stronger business relationships.

Our AI-enabled, cloud-based platform automates this entire transaction lifecycle and delivers our customer-facing products, including accounts payable, accounts receivable, and payments, along with myriad value-added services, as illustrated below:

 

LOGO

 

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Accounts Payable Automation

Our accounts payable automation service streamlines the entire legacy payables process, from the receipt of a bill, through the approvals workflow, to the payment, and synchronization with the accounting system. Here are some highlights of our service:

 

   

Visibility at a Glance—Through our platform dashboard, our customers gain a comprehensive view of their cash in-flows and outflows as well as bills coming due. In a May 2019 customer survey that we conducted, a majority of respondents reported at least a 50% time savings in accounts payable using our platform as compared to other accounts payable methods. The left navigation bar helps users choose which actions they would like to take, based upon dashboard insights, as illustrated below:

 

LOGO                                                  

 

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Document Management—Our customers have shared more than 185 million documents, most of them bills and invoices, with us since our platform’s launch in 2007. Most invoices are delivered to us directly via email. When a customer enrolls in our service, Bill.com automatically assigns a dedicated email address to the customer to provide to its suppliers. Suppliers use that email address to send invoices to the customer’s dedicated Bill.com inbox directly. Alternatively, for invoices that are mailed directly to our customers’ offices, we offer the ability for scanned invoices to be uploaded directly through our application or by fax. Below is an illustration of a customer’s inbox:

 

 

LOGO                                                  

Once uploaded, we store the bills securely, linking them to the associated supplier. With a single click, customers can use our powerful keyword search feature to scan thousands of documents quickly and resolve an open payables question. Our document management capabilities assist our SMBs in making payment decisions, answering supplier questions and providing supporting documentation to accountants and auditors.

We also securely store contracts, forms, and other critical information that customers need so that any document required to support any part of the transaction lifecycle is at their fingertips.

 

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Intelligent bill capture—We have automated the capture of data from bills by leveraging IVA. With IVA, incoming bills are machine-read, and critical data fields including due date, amount and supplier name are pre-populated. The accounts payable staff simply reviews the result, makes any adjustments required, and IVA routes the bill internally for approval as illustrated below:

 

LOGO

 

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Digital workflows and approvals—Our platform speeds approval processes through policy-driven workflows. Our customers approve more than 2.4 million bills per month on our platform. Much of this activity takes place while our customers are on-the-go: one of the top three uses of our mobile app is bill approvals. In fact, in a May 2019 customer survey we conducted, a majority of respondents reported that by using our platform, their bills get approved two to three times faster than they do using other methods. Our platform proactively suggests payment dates based upon a bill’s due date, helping customers avoid late payment penalty fees. SMBs assign each user a role, such as: administrator, payor, approver, clerk or accountant. Each has its own entitlements that the platform enforces to ensure appropriate checks and balances in the back office. For mid-sized firms with unique needs, we also offer the ability to create custom roles:

 

 

LOGO

 

   

Collaboration and engagement—Our platform promotes collaboration between customers, their employees, and their suppliers and clients. Our in-app messaging capabilities make communications easy and trackable. For example, our platform allows administrators and payors to remind approvers to act, or delegate payment authority when a key employee is unavailable. In fiscal 2019, our customers electronically exchanged over three million messages on our platform. Our platform tracks all exchanges, keeping a clear audit trail that becomes invaluable in the event of an audit, or at tax time, when organized and complete files become critical.

Accounts Receivable Automation

Our accounts receivable service builds upon our accounts payable functionality, automating the entire receivable process, from the creation of an invoice, to its delivery to the client, to funds collection and synchronization back to the accounting system. Here are some highlights of this service:

 

   

Easy invoicing—Using a simple template, customers can synchronize from their accounting software or easily create electronic invoices on our platform and insert their own logos to customize the look-and-feel. For occasions when it is required, our platform also enables the printing and mailing of paper invoices. Many accounts receivable customers take advantage of our recurring invoice feature, where they can “set it and forget it.”

 

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Digital workflows and visibility—Our platform automates and simplifies electronic invoice creation, delivery, and collection of funds. Using our progress bar, customers have complete visibility into the accounts receivable process. When both trading partners are in the network, our customer can see when their invoices are delivered, opened, authorized to be paid and payment received. Invoices and supporting documents like contracts are readily accessible and notes can be entered for future reference and are visible to authorized users. The figure below illustrates the progress bar that shows an accounts receivable customer the status of an invoice that they have sent to a client:

 

LOGO

 

   

Collaboration and engagement—For accounts receivable customers whose clients interact with them online, we offer a customizable, branded client payment portal. Clients receive a link to an electronic invoice accessible on the Bill.com site. From this customer-branded portal, the client can make a payment via ACH or credit card within seconds. In fact, in a May 2019 customer survey we conducted, half of respondents reported that using our platform allows them to get paid at least twice as fast as with other accounts receivable methods. In addition, for reference purposes, the client has ongoing access to its bills and associated payments within the portal. Just like our accounts payable service, our in-app collaboration tools make communications between the accounts receivable customer and its clients easy and trackable.

Payment Services

Using our platform, accounts payable customers can disburse funds to suppliers through multiple payment methods. Accounts receivable customers collect funds quickly and efficiently using electronic funds transfers. Our suite of comprehensive payment services includes:

 

   

ACH Payments—We enable low-cost ACH transactions for both disbursements and collections. Our network makes it simple to make the switch from paper checks.

 

   

Card Payments—Through a third party, we offer accounts receivable customers the convenience of accepting credit card payments. In addition, we have integrations with

 

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Mastercard and Comdata/Fleetcor to enable our accounts payable customers to make virtual card payments. Virtual cards enable faster payments to suppliers along with the data needed to easily match incoming payments with open receivables.

 

   

Checks—We issue payment via check if our customer prefers this method or is contractually obligated to pay via this method. By design, we protect our SMB customers against check fraud by never disclosing their bank account details to a supplier and by reviewing every check presented against a check issue file to detect and prevent tampering and check fraud.

 

   

Cross-Border Payments—We simplify cross-border disbursements by facilitating wire transfers around the world with our Cross-Border Payments service. Payments can be issued in either U.S. or foreign currency and are synchronized with accounting software for a consolidated view of all outflows, domestic and international. We now offer our U.S.-based customers the ability to disburse funds to over 130 countries worldwide.

In addition, our platform offers these value-added services:

 

   

Two-Way Sync with Leading Accounting Systems—Our platform automatically synchronizes customers, suppliers, general ledger accounts, and transactions with an SMB’s accounting system to automate reconciliation. We are integrated with several of the most popular business accounting software applications, including QuickBooks, Oracle NetSuite, and Sage Intacct. Our two-way synchronization capabilities virtually eliminate double data-entry, as our platform and the customer’s accounting software are continuously keeping each other updated. Customers who use other types of systems use our advanced file import/export capabilities to minimize data entry activities.

 

   

Purchase Order (PO) Matching—We sync POs directly from accounting software systems Oracle NetSuite and Sage Intacct into our platform. Users can compare POs and invoices on one screen, then route bills for approval and payment seamlessly in the same workflow. This eliminates the need to switch between systems for two-way matching and reduces the back-and-forth communication between PO creators and AP managers.

 

   

Frequent Status Updates—We provide timely status updates of financial inflows and outflows by providing timely status of all transactions on a regular basis. Through our workflow progress bars on each page, our customers can see who has approved an invoice and what approvals remain, the status of each payment, and the date transactions are expected to clear.

 

   

Treasury Services—Our platform integrates advanced treasury services functionality from commercial banks, tools that are normally either not offered to or are too costly for SMBs. Examples include:

 

   

the positive pay feature we employ to ensure only authorized payment transactions are processed;

 

   

a streamlined void and reissue function when an in-process payment needs to be cancelled; and

 

   

the cleared check images we make available to enable our customers to confirm payment receipt and facilitate research.

 

   

Custom User Roles—Our platform enables customers to define custom user roles that are unique to their organizations. These roles can be used to expand or limit each user’s access to the platform and core financial operations functions. For example, a customer can temporarily enable its auditors or tax preparers to access our platform using a custom role that allows them to view source documents in support of the professional services they are providing, but not have access to other confidential documents, invoices, or payment information.

 

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Document Discovery—With our advanced document management capabilities, a customer can easily search for an uploaded document and search its data elements, regardless of how old it is, or how long it has been in our system. Our customers utilize this feature when deciding whether to pay a given bill, re-issue an invoice, or determine who authorized a certain payment. It’s quick, easy, and eliminates the need for filing cabinets.

Customer Case Studies

Wild Friends Foods

Situation:    In 2011, Erika Welsh and Keeley Tillotson turned their passion for making nut and seed butters into a business: Wild Friends Foods. Today, the company’s nut and seed butters are available online and at 10,000 stores nationwide generating sales of over $5 million per year. As its business scaled, Wild Friends Foods hired a remote bookkeeper to assist with bookkeeping and other back office operations. This created unexpected challenges when the bookkeeper could not enter bills into Wild Friends Foods’ systems without access to paper bills and other related documents. The company tried scanning and emailing bills to the bookkeeper, but that only resulted in more time spent chasing paper. Lacking organization and flexibility, the account payment process was highly manual and error prone, and deprived Erika and Keeley of visibility into their day to day cash flow.

Solution:    Receiving an accountant’s recommendation in 2014, Wild Friends Foods began using our platform for accounts payable. With Bill.com, Wild Friends Foods was able to streamline its processes to improve efficiency and attain real-time visibility into payment status. Using Bill.com’s intelligent bill capture and collaboration capabilities, the company was able to coordinate with its bookkeeper with minimal friction. Currently, Wild Friends Foods uses Bill.com’s platform to pay between 200 and 400 bills per month, reducing time spent paying bills, preventing errors as data travels between systems, and enabling it to pay bills at the opportune time based on the company’s current cash situation.

“Because we’re a small company, we’re always in cash management mode. I like Bill.com because it’s much, much easier for me to see our cash on hand,” said Keeley Tillotson, CEO.

Result:    Reduced time spent on bill payments from 15 hours per month to only four or five hours.

Lindsay Leasing

Situation:    Lindsay Leasing is a property-management company based in Sarasota, Florida. For each property under management, Lindsay Leasing collects rent from tenants, deducts fees for the various services it offers, and then forwards the rent to property owners. After implementing a full-suite property-management software solution that included a rent-collection feature, Lindsay Leasing determined that the platform was too inflexible and not well-suited for its rent collection and disbursement processes. Next, it tried an electronic-payments provider, but that solution lacked integration with Intuit QuickBooks, which led it to spend hours manually reconciling payments. As the business scaled and transactions became more complex, this made it challenging for Lindsay Leasing to manage cash flow and process payments on time.

Solution:    Lindsay Leasing’s search for a system that would scale with its growing business ended when it discovered Bill.com’s accounts payable and accounts receivable software platform. Bill.com has proved to be a key competitive differentiator for Lindsay Leasing, as it is able to pay property owners faster than competing property management firms. Moreover, since Bill.com’s platform syncs seamlessly with Intuit QuickBooks, Lindsay Leasing no longer needs to spend hours

 

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manually entering every transaction into the accounting system. With Bill.com’s platform, Lindsay Leasing has more time to develop new business and scale efficiently without having to hire additional accounting staff.

“Bill.com is like an extra partner in the office,” said Mark Lindsay, Managing Director at Lindsay Leasing. “Bill.com is the one who’s looking at all the details and bringing pertinent information to the surface that I need to act on. I wake up every day and the first thing I do is get on the system, because it helps me be more productive.”

Result:    With Bill.com, Lindsay Leasing provides better services to its customers, allowing it to pay and get paid on a more timely and efficient basis, and providing Mark and his employees with valuable business insights.

O&M Restaurant Group

Situation:    O&M Restaurant Group operates 40 quick service restaurants including 15 Burger King, 18 Taco Bell and 6 Blaze Pizza franchises in Oklahoma and Louisiana. With over 1,000 employees and many vendors in different markets, processing invoices was a time-consuming and tedious task. The process involved scanning each invoice, entering the invoice information into its accounting system, routing for approval, and tracking the invoice status manually. While this approach worked for a while, the company realized that it needed a solution to support the demands of its geographically-distributed and growing business.

Solution:    Bill.com has enabled O&M to integrate its restaurants onto a single platform for bill payment and invoice processing. While each of the three brands have different accounts, they are integrated and linked to one master account. Moreover, through Bill.com’s digital workflows and intuitive, AI-based platform, O&M has simplified its back-office processes while reducing the training required to execute those processes. O&M’s auditors also use Bill.com to get a complete view of O&M’s financials. The auditors can access the system to read contracts, examine bills and invoices, and ensure accuracy of the data. O&M relies on Bill.com to manage and optimize its cash flow, increase efficiency, save money and free up time to focus on growing the business.

Result:    Since O&M began using Bill.com in 2012, it has more than doubled its annual revenue (from $30 million to $65 million) without adding headcount in the corporate office or outsourcing its accounts payable service, resulting in an estimated savings of $150,000 a year.

Acuity

Situation:    Acuity provides everything from CFO-level services to bookkeeping for U.S.-based technology companies. The firm has built its client base by bundling innovative third-party technologies to create virtual, paperless, and mobile financial services. Prior to adopting Bill.com, the firm typically turned away bill pay service requests because it meant directly accessing bank accounts on behalf of its clients through bank websites. Acuity was looking for a solution that could provide more control and visibility for its clients.

Solution:    After successfully deploying Bill.com’s platform, Acuity launched its bill pay management service and only accepted bill payment clients that agreed to use Bill.com. Through the platform, Acuity simplifies its client accounts payable processes, streamlines reconciliation with client accounting software, and enables clients to send cross-border payments. By automating routine workflows, Bill.com empowers Acuity and its employees to provide more value-added services and insights to its clients, without the burden of labor-intensive and error-prone data entry. In addition to providing increased back-office efficiency, Bill.com gives Acuity clients the confidence that only authorized users have access to their sensitive financial data.

 

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“The core of our business is to use best-of-breed software to build the firm and our services. Bill.com is a fundamental part of our business plan. Bill.com has helped us become a firm of the future,” said Matthew May, founder of Acuity.

Result:    Acuity now has a bill pay business that generates $250,000 a year in revenue.

Our Data Asset

The payment activity of our over 81,000 customers as of September 30, 2019, and 1.8 million network members, as of June 30, 2019, paired with more than 180 million documents, bills, and invoices processed through our platform, provides us with a unique data asset. This asset has allowed us to enhance the machine learning algorithms that power our artificial intelligence capabilities. The data provides a view into customer transactions and operational status of various payment processes, which enables us to effectively manage risk exposure. Our system continues to learn with each invoice uploaded and each new member that joins our network. This virtuous cycle of learning powers a network effect that facilitates customer satisfaction, offers intelligent insights, improves trust and safety, and will fuel further growth.

Our Network

Through our AI-enabled platform, our customers can easily connect with existing network members. The benefit of being in the network is simple: customers connect with others to pay and be paid electronically, freeing them of the need to solicit or share bank account and routing numbers with each trading partner individually. The process of adding bank account details to our platform is easy and secure. For example, when a supplier of an accounts payable customer receives an invitation to join our network, the supplier can accept and securely share their bank account details once with Bill.com. From that point onward, all payments to that supplier will be electronic.

Once in the network, other Bill.com customers can easily link to that same supplier without the supplier having to repeat this process again. This approach to connecting businesses for accounts payable and accounts receivable has allowed us to build a robust and growing business-to-business payments directory, which includes over 1.8 million network members as of June 30, 2019.

These network effects promote greater adoption of our platform, higher levels of engagement, and increased value across our ecosystem. We believe this is the fundamental power of our network.

Technology and Architecture

We have built a modern technology platform that serves as the foundation for a highly scalable and extensible SaaS solution. Our foundation is built upon sophisticated infrastructure, app servers, and databases. Additionally, we have integrated a powerful AI-enabled machine learning engine, payment and risk engine, document management services, and workflow management. Together, these services form our platform, which serves our customers and can be adapted to support new strategic partners and future technology integrations.

Our proprietary technology includes the following:

Artificial Intelligence Technology

IVA eliminates most manual data entry from invoices received electronically via email or uploaded by customers. Leveraging our machine-learning capabilities, IVA pre-populates the key fields needed

 

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to process an invoice in accounts payable, including: supplier name, dollar amount, invoice number, invoice date, and due date. We learn from our customers’ prior transactions and suggest the appropriate general ledger code and the appropriate people to include in approval workflows. As a result, invoices are presented to our customers, pre-populated and pre-processed, ready for a quick confirmation review and then routed through the approval process.

IVA reduces a customer’s data entry burden, reduces data entry errors, and delivers additional insights to streamline back-office workflows. By gleaning payment details from the invoice, our intelligent platform can send payments using the most efficient means accepted by their suppliers. Our system continues to learn with each invoice uploaded and each new customer, supplier, or client that joins our network. This virtuous cycle of learning powers a network effect that delivers customer delight, intelligent insights, and business growth.

Mobile Capabilities

Integrated, robust mobile functionality is a key requirement for business users as more daily back-office tasks migrate away from the office and the desktop. Our mobile-native app, available in both iOS and Android, is easy to adopt and use. Through our app, our customers can manage their transaction workflows, send an invoice, or make payments on-the-go.

Partner Integrations

We provide our financial institution strategic partners a technology platform that enables a simple, white-label integration with their existing business banking services. We deliver single sign-on, multi-factor authentication, integrated provisioning and entitlement of new accounts, as well as integration with required compliance systems. Transactions are synchronized automatically between the financial institution’s platform and ours, keeping the customer’s view current and consistent.

In addition to our white-labeled solution, we support a broad range of partners and customers with our platform APIs. These APIs allow our partners to integrate our platform seamlessly into their solutions, create web or mobile apps that integrate with ours, or leverage our payments capabilities. Through our APIs, developers can:

 

   

interact with business entities, like suppliers and clients;

 

   

obtain summary-level reports, such as payables and receivables reports; and

 

   

interact with accounting details, such as the chart of accounts’ general ledger codes.

Payment and Risk Management Services

Our payments engine powers our payment services. Through dedicated connections with banks and payment processors, we issue checks, originate ACH files, and execute wire transfers. We receive incoming files daily that include cleared check information, check images, and ACH returns. Our payments engine handles all aspects of payment file transfers, exception file handling, and required payment status reporting. We have redundancy such that if one of our payment providers is unable to process a file on a given day, we have the option to re-route the file to another provider, preventing any interruption in payment processing services.

Our operations dashboard provides a full view of the current status of all payment processes, such as disbursement/funding, settlement, voids, returns, and ACH status. Notifications, alerts, and exceptions are sent to our network operations center, payment operations, and customer support teams so we can proactively monitor transactions on behalf of our customers throughout the business day and during off-hours. The data provides a view into customer transactions and operational status of various payment processes, enabling us to effectively manage risk exposure.

 

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Through our risk engine, we use both proprietary and third-party tools to assess, detect, and mitigate financial risk associated with the payment volume that we process. Throughout the transaction lifecycle, we monitor customers, users, and payments to ensure that we are safeguarding our customers, their suppliers and clients, and our company. At new account set-up, we verify that the customer exists, that the person who enrolled the customer exists, and that the customer’s business is in good standing. When a bank account is added to the platform, we validate that the bank account is held at a United States-domiciled financial institution, is associated with the organization adding the account, and is in good standing.

When customers use our services, we monitor key activities looking for signals that would indicate anomalies that could create risk exposure and need to be investigated. Our risk engine analyzes 95 individual data elements to score transactions. Those that score above our thresholds are routed to trained risk agents for manual review. Agents have the latitude to contact customers to gather further information, or if a financial risk is imminent, to prevent funds from leaving our system until any suspicious activity can be resolved.

Once a payment transaction is processed, we continue to manage our exposure. We have extensive contacts in the banking industry, and we utilize these to reverse payments when possible. If a suspicious or fraudulent payment cannot be reversed, we follow a rigorous collections process to recover funds.

This risk management process gets progressively more accurate and insightful as our dataset gets larger and our AI-enabled risk engine gets smarter. This is an advantage that we expect to continue to grow over time. Our success in managing the risk inherent in moving funds for business customers is proven. As a percentage of our total payment volume, our fraud loss rates were negligible, less than one basis point for each of fiscal 2018 and 2019.

Infrastructure and Operations

Our technology architecture supports a distributed deployment footprint across multiple data centers and regions in a public cloud environment. We employ enterprise-grade databases with real-time replication between data centers to ensure minimal data loss and maximum availability. We have purposefully engineered for redundancy and fault tolerance; in the event of a production incident, we can failover between data centers with minimal data loss. Since 2017, we have been performing a full-site failover, where we seamlessly move from our primary production site to our hot back-up site, and run in the back-up site for a full week, before reverting back to our primary location.

We designed our platform with multiple layers of redundancy and fault tolerance to guard against data loss while delivering high availability and low latency. Data is replicated in real-time between databases in our two primary data centers. Incremental backups are performed hourly and full backups are performed daily. These backups are transmitted electronically and hosted in a third data center. No tapes are used for transmission or storage, which eliminates a common source of data loss. Data is encrypted during transmission and at rest when stored in our system.

We have begun transitioning all production infrastructure to Amazon Web Services, which will enhance our ability to scale quickly and efficiently.

Security, Privacy, and Data Protection

Trust is important for our relationship with customers and partners, and we take significant measures designed to protect their privacy and the data that they provide to us. Keeping our customers’ data safe and secure is a high priority. Our approach to security includes data governance as well as ongoing testing for potential security issues.

 

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We have robust access controls in our production environment with access to data strictly assigned, monitored, and audited. To ensure our controls remain up-to-date, we undergo continuous external testing for vulnerabilities within our software architecture. These efforts have enabled us to certify our platform to SOC1 Type II, SOC2 Type II, and SOC3 standards. Our security program is aligned to the NIST-800-53 standards and is regularly audited and assessed by third parties as well as our strategic partners.

Our security program consists of the following:

 

   

Organizational security—including personnel security, security and privacy training, a team of dedicated security professionals, policies and standards, separation of duties, regular audits, compliance activities, and third-party assessments;

 

   

Secure by design principles—by which we assess the security risk of each software development project according to our secure development lifecycle and create a set of requirements that must be met before the resulting change may be released to production; and

 

   

Public bug bounty program—to facilitate responsible disclosure of potential security vulnerabilities identified by external researchers and reward them for their verified findings.

The focus of our program is working to prevent unauthorized access to the data of our customers and network members. To this end, our team of security practitioners work to identify and mitigate risks, implement best practices, and continue to evaluate ways to improve. These steps include close attention to network security, classifying and inventorying data, limiting and authorizing access controls, and multi-factor authentication for access to systems. We also employ regular system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production infrastructures.

We take steps to help ensure that our security measures are maintained by the third-party suppliers we use, including conducting annual security reviews and audits.

Competition

Our primary competition remains the legacy manual processes that SMBs have relied upon for decades. Other competitors range from large firms that predominantly focus on selling to enterprises, to smaller niche providers of solutions that focus exclusively on document management, workflow management, accounts payable solutions, accounts receivable solutions, or electronic bill presentment and payment.

We differentiate ourselves from our competitors by offering a unified financial back-office solution that handles accounts payable, accounts receivable, and payment services end-to-end. Our extensive investment in building a robust, fully-integrated two-way sync with popular accounting software providers is well-regarded in the industry. With respect to the domestic payments that comprise the bulk of our business, we disburse and collect funds on behalf of our customers through our proprietary payments engine.

We believe that the key competitive factors in our market include:

 

   

Product features, quality, and functionality;

 

   

Data asset size and ability to leverage artificial intelligence to grow faster and smarter;

 

   

Ease of deployment;

 

   

Ease of integration with leading accounting and banking technology infrastructures;

 

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Ability to automate processes;

 

   

Cloud-based delivery architecture;

 

   

Advanced security and control features;

 

   

Regulatory compliance leadership, as evidenced by having been granted money transmitter licenses in all required U.S. jurisdictions;

 

   

Brand recognition; and

 

   

Pricing and total cost of ownership.

We compare favorably with our competitors on the basis of these factors. We expect the market for SMB back-office financial software and business-to-business payment solutions to continue to evolve and grow, as greater numbers of SMBs and larger businesses digitize their back offices. We believe that we are well-positioned to help them.

Research and Development

We invest substantial time, energy, and resources to ensure we have a deep understanding of our customers’ needs, and we continually innovate to deliver value-added products and services through our platform. Our research and development organization consists of engineering, product, and design teams. These teams are responsible for the design, development, and testing of our applications. We focus our efforts on developing new functionality and further enhancing the usability, reliability, and performance of existing applications.

Sales and Marketing

We distribute our platform through direct and indirect sales channels, both of which we leverage to reach our target customers in an efficient manner. Our direct sales are driven by a self-service process and an inside sales team. Our inside sales team augments our direct sales capabilities by targeting potential customers that have engaged with us on their own.

We also reach customers indirectly through our partnerships with accounting firms, financial institutions, and accounting software providers. While these partners sometimes require an initial integration investment, a go-to-market flywheel takes effect as our partners accelerate the delivery of our platform across their customer base with minimal incremental investment from us.

We focus our marketing efforts on generating leads to develop our sales pipeline, building brand and category awareness, enabling our go-to-market partners, and growing our business from within our existing customers. Our sales leads primarily come through word-of-mouth, our accounting firm partners, and website searches. We generate additional leads through digital marketing campaigns, referrals, in-product customer education, brand advertising, public relations, and social media.

Customer Success

SMBs have unique needs and customer support contact expectations. With more than a decade of experience supporting our product, our customer success team has a deep understanding of their needs and has developed our support model accordingly. We recognize and understand patterns that our customers may not, because we see the aggregate—millions of accounts payable and accounts receivable transactions per month. We use what we learn to continuously improve the platform and the customer experience. We have developed an efficient support model. For instance, we offer online

 

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chat support respond to customers within seconds of their initial outreach. We also leverage our machine learning tools to anticipate customer issues and provide in-app, real-time suggestions and support.

We provide onboarding implementation support, as well as ongoing support and training. We periodically contact our customers to discuss their utilization of our platform, highlight additional features that may interest them, and identify any additional tools that may be needed.

Regulatory Environment

We operate in a rapidly evolving regulatory environment. Most states in the United States require a license to offer money transmission services such as the payment services that we offer. We have procured and maintain money transmitter licenses in all 49 jurisdictions that currently require them and actively work to comply with new license requirements as they arise. We are also registered as a Money Services Business with the U.S. Department of Treasury’s Financial Crimes Enforcement Network. These licenses and registrations subject us, among other things, to record-keeping requirements, reporting requirements, bonding requirements, limitations on the investment of customer funds, and inspection by state and federal regulatory agencies.

As a Money Services Business and a licensed money transmitter we are subject to U.S. anti-money laundering (AML) laws and regulations. We have implemented and are expanding an AML program designed to prevent our platform from being used to facilitate money laundering, terrorist financing, and other financial crimes. Our program is also designed to prevent our products from being used to facilitate business in certain countries, or with certain persons or entities, including those on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls and other foreign authorities. Our AML and sanctions compliance programs include policies, procedures, reporting protocols, and internal controls, including the designation of an AML compliance officer to oversee the programs, and is designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing risks.

We collect and use a wide variety of information for various purposes in our business, including to help ensure the integrity of our services and to provide features and functionality to our customers. This aspect of our business, including the collection, use, disclosure, and protection of the information we acquire in connection with our customers’ use of our services, is subject to numerous laws and regulations in the United States. Accordingly, we publish our privacy policies and terms of service, which describes our practices concerning the use, transmission, and disclosure of information.

In addition, several foreign countries and governmental bodies, including the European Union, have laws and regulations dealing with the collection, use, disclosure, and protection of information which are more restrictive than those in the United States. While we believe that the products and services that we currently offer do not subject us to such laws or regulations in foreign jurisdictions, such laws and regulations may be modified or subject to new or different interpretations, new laws and regulations may be enacted, or we may modify our products or services in the future, which may subject us to such laws and regulations.

Various regulatory agencies in the United States and in foreign jurisdictions continue to examine a wide variety of issues which are applicable to us and may impact our business. These issues include identity theft, account management guidelines, privacy, disclosure rules, cybersecurity, and marketing. As our business continues to develop and expand, we continue to monitor the additional rules and regulations that may become relevant.

Any actual or perceived failure to comply with legal and regulatory requirements may result in, among other things, revocation of required licenses or registrations, loss of approved status, private

 

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litigation, regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal liability, and constraints on our ability to continue to operate. For an additional discussion on governmental regulation affecting our business, please see the risk factors related to regulation of our payments business and regulation in the areas of privacy and data use, under the section titled “Risk Factors—Risks Related to our Business and Industry.”

Employees

As of September 30, 2019, we had 544 full-time employees. We also engage temporary employees and consultants as needed to support our operations. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relations with our employees to be good.

Facilities

Our corporate headquarters are located in Palo Alto, California, where we occupy facilities totaling approximately 48,200 square feet under a lease that expires in May 2020. We use these facilities for administration, finance, legal, human resources, information technology, sales and marketing, engineering, and customer success. We also lease approximately 25,000 square feet in Houston, Texas for human resources, engineering, customer success, and sales and marketing under a lease that expires in April 2025.

We intend to procure additional space as we add employees and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our operations.

Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, including patent, commercial, product liability, employment, class action, whistleblower, and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. In addition, third parties may from time to time assert claims against us in the form of letters and other communications. We are not currently a party to any legal proceedings that we believe to be material to our business or financial condition. The results of any 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.

Intellectual Property

We seek to protect our intellectual property rights by relying upon a combination of patent, trademark, copyright, and trade secret laws, as well as contractual measures.

As of September 30, 2019, we had 13 issued patents that expire between 2028 and 2037, and four pending patent applications. These patents and patent applications seek to protect proprietary inventions relevant to our business. While we believe our patents and patent applications in the aggregate are important to our competitive position, no single patent or patent application is material to us as a whole. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.

 

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As of September 30, 2019, we had one trademark registration covering the Bill.com logo. We will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective. We also own several domain names, including www.bill.com.

We rely on trade secrets and confidential information to develop and maintain our competitive position. It is our practice to enter into confidentiality and invention assignment agreements (or similar agreements) with our employees, consultants, and contractors involved in the development of intellectual property on our behalf. We also enter into confidentiality agreements with other third parties in order to limit access to, and disclosure and use of, our confidential information and proprietary information. We further control the use of our proprietary technology and intellectual property through provisions in our terms of service.

From time to time we also incorporate certain intellectual property licensed from third parties, including under certain open source licenses. Even if any such third-party technology was not available to us on commercially reasonable terms, we believe that alternative technologies would be available as needed.

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 produced may not protect our intellectual property rights to the same extent as laws in the United States. Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation based on allegations of patent infringement or other violations of intellectual property rights. We believe that competitors will try to develop products that are similar to ours and that may infringe our intellectual property rights. Our competitors or other third-parties may also claim that our solutions infringe their intellectual property rights. In particular, some companies in our industry have extensive patent portfolios. From time to time, third parties have in the past and may in the future assert claims of infringement, misappropriation, and other violations of intellectual property rights against us or our customers or partners, with whom our agreements may obligate us to indemnify against these claims. Successful claims of infringement by a third party could prevent us from offering certain products or features, require us to develop alternate, non-infringing technology, which could require significant time and during which we could be unable to continue to offer our affected products, require us to obtain a license, which may not be available on reasonable terms or at all, or force us to pay substantial damages, royalties, or other fees. Moreover, our products incorporate software components licensed to the general public under open source software licenses. Open source licenses grant licensees broad permissions to use, copy, modify, and redistribute our platform. As a result, open source development and license practices can limit the value of our software copyright assets.

For additional information about our intellectual property and associated risks, see the section titled “Risk Factors—Risks Related to our Business and Industry.”

 

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MANAGEMENT

Executive Officers and Directors

The following table provides information regarding our executive officers and directors as of December 1, 2019:

 

Name

   Age     

Position(s)

Executive Officers:

     

René Lacerte

     52      Chief Executive Officer and Director

John Rettig

     54      Chief Financial Officer and Executive Vice President, Finance and Operations

Raj Aji

     57      General Counsel, Chief Compliance Officer and Secretary

Bora Chung

     47      Senior Vice President, Product
Non-Employee Directors:      

Steven Cakebread(2)

     68      Director

David Chao

     53      Director

David Hornik(1)

     51      Director

Brian Jacobs(3)

     58      Director

Peter Kight(3)

     63      Director

Thomas Mawhinney

     51      Director

Allison Mnookin(3)

     49      Director

Rory O’Driscoll(1)

     55      Director

Steven Piaker(2)

     56      Director

 

(1)

Member of the nominating and governance committee.

(2)

Member of the audit committee.

(3)

Member of the compensation committee.

Executive Officers

René Lacerte has served as our Chief Executive Officer and a member of our board of directors since our inception in April 2006. Prior to founding Bill.com, he founded PayCycle, Inc. in 1999, an online payroll solution which was acquired by Intuit, Inc., a software company, in 2009. Mr. Lacerte holds a B.A. in Economics from Stanford University and an M.S. in Industrial Engineering from Stanford University. We believe that Mr. Lacerte is qualified to serve on our board of directors because of his deep industry experience as an SMB owner and as an executive at software companies, and as our founder and Chief Executive Officer.

John Rettig has served as our Chief Financial Officer and Executive Vice President, Finance and Operations since June 2014. Mr. Rettig previously served as the Chief Financial Officer at Exponential Interactive, Inc., an advertising intelligence and digital media solutions company, from May 2005 to June 2014, where he was responsible for the global finance function. Mr. Rettig holds a B.S. in Economics and Business Administration from Saint Mary’s College of California.

Raj Aji has served as our General Counsel, Chief Compliance Officer and Secretary since August 2016. Prior to joining Bill.com, Mr. Aji served as Assistant General Counsel, Financial Services, for Intuit, Inc., a software company, from January 2013 to August 2016. He has previously served as General Counsel at Obopay, Inc., a mobile payments company, from December 2010 to December 2012, and Xoom.com, Inc., a publicly-listed e-commerce company. From February 2018 to May 2019, Mr. Aji served as a member of the board of directors of IIT Startups, a non-profit organization

 

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dedicated to educating and mentoring early stage technology companies. Mr. Aji holds a B. Tech in Chemical Engineering, from the Indian Institute of Technology, Bombay, an M.S. in Civil and Environmental Engineering from the University of Iowa, Iowa City and a J.D. from the University of California, Berkeley, School of Law.

Bora Chung has served as our Senior Vice President of Product since December 2018. Prior to joining Bill.com, Ms. Chung served as Chief Product Officer for eBay Korea Co. Ltd., a subsidiary of eBay Inc. and an online marketplace, from September 2016 to November 2018, and as Vice President, Product Management for eBay Inc., a multinational e-commerce corporation, from December 2014 to August 2016. Ms. Chung also previously served as the Director of Worldwide Payments and Financing for Apple Online Stores at Apple Inc., a multinational technology company, from October 2010 to December 2014. Ms. Chung holds an A.B. in Economics from Harvard University and a M.B.A. from the Stanford University Graduate School of Business.

Non-Employee Directors

Steven Cakebread has served as a member of our board of directors since May 2019. Since October 2014, Mr. Cakebread has served as Chief Financial Officer of Yext Inc., a software company. From March 2013 to September 2014, he served as Chief Financial Officer and Chief Accounting Officer of D-Wave Systems, Inc., a quantum computing company. From May 2002 to March 2008, Mr. Cakebread served as Chief Financial Officer of Salesforce.com, Inc., a cloud-based software company. He previously served as a member of the board of directors of ServiceSource International, Inc., a service support provider, from February 2010 to October 2017. Mr. Cakebread holds a B.S. in Accounting from the University of California, Berkeley, and a M.B.A. from Indiana University. We believe Mr. Cakebread is qualified to serve as a member of our board of directors because of his senior leadership experience and responsibility over financial and accounting matters at technology companies.

David Chao has served as a member of our board of directors since September 2016. Mr. Chao has served as Co-Founder and General Partner at DCM, a venture capital firm since December 1996. Mr. Chao also serves as chairman of the board of directors of 51job, Inc., a human resource solutions provider, and currently serves on the boards of directors of several privately held companies. He previously served as a director on the board of Renren Inc., a Chinese social networking service, from March 2006 to July 2018. Mr. Chao holds a B.A. in Economics and East Asian Studies from Brown University and a M.B.A. from the Stanford University Graduate School of Business. We believe Mr. Chao is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

David Hornik has served as a member of our board of directors since May 2016. Mr. Hornik has served as general partner of August Capital, a venture capital firm, since June 2000. Since February 2012, Mr. Hornik has served on the board of directors of Fastly, Inc., a cloud computing company, and currently serves on the boards of directors of several privately held companies. He also served on the board of directors of Splunk, Inc., a provider of machine data analytics software, from August 2004 to September 2017. Mr. Hornik holds an A.B. in Political Science and an A.B. in Computer Music from Stanford University, M. Phil in Criminology from Cambridge University and a J.D. from Harvard Law School. We believe Mr. Hornik is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

Brian Jacobs has served as a member of our board of directors since August 2007. Mr. Jacobs has served as Founder and General Partner of Emergence Capital Partners, a venture capital firm, since January 2003, as well as Founder and Managing Partner of Moai Capital, a seed capital firm, since January 2018. Mr. Jacobs also currently serves on the boards of directors of several privately

 

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held companies. Mr. Jacobs holds a B.S. and an M.S. in Mechanical Engineering from Massachusetts Institute of Technology and an M.B.A. from Stanford Graduate School of Business. We believe Mr. Jacobs is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

Peter Kight has served as a member of our board of directors since May 2019. Mr. Kight is a venture capital investor and previously served as Senior Advisor to Comvest Partners, a private equity firm, from April 2013 to April 2015. He has served on the board of directors of Blackbaud, Inc., a software company, since December 2014, and of Huntington Bancshares, Inc., a holding company, since June 2012, and as chairman of the board of directors of Repay Holdings Corp., a financial technology and payment processing solutions, since July 2019. From September 2017 to July 2019, Mr. Kight served as chairman of the board of directors of Thunder Bridge Acquisition, Ltd., a special acquisition company. We believe Mr. Kight is qualified to serve as a member of our board of directors because of his experience in the technology and payments industry.

Thomas Mawhinney has served as a member of our board of directors since February 2013. Since August 2003, Mr. Mawhinney has served as a general partner of Icon Ventures IV, L.P. He also currently serves on several private company boards. Mr. Mawhinney holds a B.A. in Government from Harvard University and an M.B.A. from the Stanford Graduate School of Business. We believe Mr. Mawhinney is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

Allison Mnookin has served as a member of our board of directors since July 2019. Since July 2017, Ms. Mnookin has served as a senior lecturer of business administration at Harvard Business School. Prior to joining us, she served as CEO of Quick Base, Inc., an online application software company, from April 2016 to November 2016. From July 2010 to March 2016, Ms. Mnookin served as vice president and general manager of the QuickBase business of Intuit, Inc., a software company. Since June 2018 Ms. Mnookin has served on the board of LPL Financial Holdings, Inc., a technology, brokerage and investment advisory services company, and on the board of QuickBase, Inc. since its divestment from Intuit in March 2016 until April 2019. Ms. Mnookin also served on the board of Fleetmatics Group PLC, a SaaS fleet management provider, from March 2014 to November 2016. Ms. Mnookin holds an A.B. in Women’s Studies from Harvard University and an M.B.A. from Harvard Business School. We believe Ms. Mnookin is qualified to serve as a member of our board of directors because of her executive experience and knowledge of technology companies.

Rory ODriscoll has served as a member of our board of directors since August 2013. Since 2007, Mr. O’Driscoll has been a Managing Partner at Scale Venture Partners, a venture capital firm. Mr. O’Driscoll has served as a member of the board of directors of Box, Inc., a data storage and file management software company, since April 2010. Mr. O’Driscoll previously served on the board of directors of DocuSign, Inc., an eSignature and digital transaction management company, from December 2010 to August 2018, and ExactTarget, Inc., a digital marketing software company, until it was acquired by Salesforce.com, Inc., a cloud-based software company, in July 2013. Mr. O’Driscoll also currently serves on the boards of directors of several privately held companies. Mr. O’Driscoll holds a B.Sc. in Economics from the London School of Economics. We believe Mr. O’Driscoll is qualified to serve as a member of our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

Steven Piaker has served as a member of our board of directors since December 2011. Since February 2013, Mr. Piaker has served as a partner of Napier Park Global Capital, an alternative asset management firm and as co-head and partner of Napier Park Financial Partners, Napier’s private equity group, and from July 2011 until February 2013 he served in a similar capacity at Napier Park’s predecessor firm. He also currently serves on several private company boards. Mr. Piaker holds a B.A. in Economics from University of Rochester and an M.B.A. from Duke University Fuqua School of Business. We believe Mr. Piaker is qualified to serve as a member of our board of directors because of

 

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his extensive experience in the private equity and venture capital industry and his knowledge of technology companies.

Corporate Governance

Appointment of Officers

Our executive officers are appointed by, and serve at the discretion of, our board of directors. There are no family relationships between any of our directors or executive officers.

Board Composition

Our board of directors currently consists of eleven members, with one vacancy. Pursuant to our amended and restated certificate of incorporation and our amended and restated voting agreement as in effect prior to the completion of this offering, René Lacerte, Alison Mnookin, David Hornik, Brian Jacobs, Peter Kight, Thomas Mawhinney, Steven Cakebread, Steven Piaker, Rory O’Driscoll, and David Chao have been designated to serve as members of our board of directors. Pursuant to our amended and restated certificate of incorporation and amended and restated voting agreement, the seat occupied by Mr. Chao is elected by the holders of our Series A redeemable convertible preferred stock; the seat occupied by Mr. Jacobs is elected by the holders of our Series B redeemable convertible preferred stock; the seat occupied by Mr. Hornik is also elected by the holders of our Series B redeemable convertible preferred stock; the seat occupied by Mr. Mawhinney is elected by the holders of our Series C redeemable convertible preferred stock; the seat occupied by Mr. O’Driscoll is elected by the holders of our Series E redeemable convertible preferred stock; the seats occupied by Mr. Piaker and Mr. Lacerte are elected by the holders of all of our preferred stock and our common stock, voting together as a single class and on an as-converted basis, with Mr. Piaker as the at-large designee of certain investors and Mr. Lacerte as the at-large designee of each of (i) a majority of the then outstanding shares of our redeemable convertible preferred stock, voting together as a single class on an as-converted basis and (ii) a majority of the then outstanding shares of our common stock, voting as a separate class; finally, the seats occupied by Mr. Cakebread, Mr. Kight, and Ms. Mnookin were each elected by the holders of our common and preferred stock, voting together as a single class on an as-converted basis.

The amended and restated voting agreement and the provisions of our amended and restated certificate of incorporation by which all of our current directors were elected will terminate, and no contractual obligations regarding the election of our directors will remain, following the completion of this offering. Each of our current directors will continue to serve until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal.

Classified Board of Directors

Upon the completion of this offering, our board of directors will consist of ten members and be divided into three classes of directors that will serve staggered three-year terms. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the same class whose term is then expiring. As a result, 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 René Lacerte, Thomas Mawhinney and Peter Kight, and their terms will expire at the first annual meeting of stockholders to be held after the completion of this offering;

 

   

the Class II directors will be Alison Mnookin, David Chao, Steven Piaker and Rory O’Driscoll, and their terms will expire at the second annual meeting of stockholders to be held after the completion of this offering; and

 

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the Class III directors will be David Hornik, Brian Jacobs, and Steven Cakebread, and their terms will expire at the third annual meeting of stockholders to be held after the completion of this offering.

Each director’s term continues until the election and qualification of his or her successor, or his or her earlier death, resignation, or removal. Our restated certificate of incorporation and restated bylaws to be in effect upon the completion of this offering will authorize only our board of directors to fill vacancies on our board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company. See the section titled “Description of Capital Stock—Anti-Takeover Provisions.”

Director Independence

In connection with this offering, we have been approved to list our common stock on the New York Stock Exchange (NYSE). Under the rules of the NYSE, independent directors must comprise a majority of a listed company’s board of directors within a specified period after the completion of this offering. In addition, the rules of the NYSE require that, subject to specified exceptions, each member of a listed company’s audit, compensation, and nominating and governance committees be independent. Under the rules of the NYSE, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Additionally, compensation committee members must not have a relationship with us that is material to the director’s ability to be independent from management in connection with the duties of a compensation committee member.

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or be an affiliated person of the listed company or any of its subsidiaries. We intend to satisfy the audit committee independence requirements of Rule 10A-3 as of the completion of this offering.

Our board of directors has undertaken a review of the independence of each director and considered whether each director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our board of directors determined that Messrs. Cakebread, Chao, Hornik, Jacobs, Kight, Mawhinney, O’Driscoll, and Piaker, and Ms. Mnookin, are “independent directors” as defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the NYSE. In making these determinations, our board of directors reviewed and discussed information provided by the directors and by us with regard to each director’s business and personal activities and relationships as they may relate to us and our management, including the beneficial ownership of our common stock by each non-employee director and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”

Committees of the Board of Directors

Our board of directors has an audit committee, a compensation committee, and a nominating and governance committee, each of which, pursuant to its respective charter, will have the composition and

 

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responsibilities described below upon the completion of this offering. Following the completion of this offering, copies of the charters for each committee will be available on the investor relations portion of our website. Members serve on these committees until their resignation or until otherwise determined by our board of directors.

Audit Committee

Our audit committee is composed of Mr. Piaker and Mr. Cakebread. Mr. Cakebread is the chair of our audit committee. The members of our audit committee meet the independence requirements under NYSE and SEC rules. Each member of our audit committee is financially literate. In addition, our board of directors has determined that Mr. Cakebread is an “audit committee financial expert” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not, however, impose on him any supplemental duties, obligations, or liabilities beyond those that are generally applicable to the other members of our audit committee and board of directors. Our audit committee’s principal functions are to assist our board of directors in its oversight of:

 

   

selecting a firm to serve as our independent registered public accounting firm to audit our consolidated financial statements;

 

   

ensuring the independence 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 that firm, our interim and year-end operating results;

 

   

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

 

   

considering the adequacy of our internal controls and internal audit function;

 

   

reviewing related-party transactions that are material or otherwise implicate disclosure requirements; and

 

   

approving, or as permitted, pre-approving all audit and non-audit services to be performed by the independent registered public accounting firm.

Compensation Committee

Our compensation committee is composed of Mr. Jacobs, Mr. Kight and Ms. Mnookin. Mr. Jacobs is the chair of our compensation committee. The members of our compensation committee meet the independence requirements under NYSE and SEC rules. Each member of this committee is also a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act. Our compensation committee is responsible for, among other things:

 

   

reviewing and approving, or recommending that our board of directors approve, the compensation of our executive officers;

 

   

reviewing and approving, or recommending that our board of directors approve, the terms of any compensatory agreements with our executive officers;

 

   

reviewing and recommending to our board of directors the compensation of our directors;

 

   

administering our stock and equity incentive plans;

 

   

reviewing and approving, or making recommendations to our board of directors with respect to, incentive compensation and equity plans; and

 

   

establishing our overall compensation philosophy.

 

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Nominating and Governance Committee

Our nominating and governance committee is composed of Mr. Hornik and Mr. O’Driscoll. Mr. Hornik is the chair of our nominating and governance committee. The members of our nominating and governance committee meet the independence requirements under NYSE and SEC rules. Our nominating and governance committee’s principal functions include:

 

   

identifying and recommending candidates for membership on our board of directors;

 

   

recommending directors to serve on board committees;

 

   

reviewing and recommending to our board of directors any changes to our corporate governance principles;

 

   

reviewing proposed waivers of the code of conduct for directors and executive officers;

 

   

overseeing the process of evaluating the performance of our board of directors; and

 

   

advising our board of directors on corporate governance matters.

Compensation Committee Interlocks and Insider Participation

None of the members of the compensation committee is currently, or has been at any time, one of our officers or employees. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board or compensation committee during fiscal 2019.

Non-Employee Director Compensation

In fiscal 2019, no cash compensation was paid to the non-employee members of our board of directors. All compensation paid to Mr. Lacerte, our only employee director, is set forth below in the section titled “Executive Compensation—2019 Summary Compensation Table.” The following table provides information regarding compensation of our non-employee directors for director service, for fiscal 2019. Other than as set forth in the table and described more fully below, during fiscal 2019, we did not pay any fees to, make any equity awards or non-equity awards to, or pay any other compensation to the non-employee members of our board of directors.

 

Name

   Option Awards ($)(1)     Total ($)  

Steven Cakebread

     -         -    

David Chao

     -         -    

David Hornik

     -         -    

Brian Jacobs

     -         -    

Peter Kight

   $ 573,368 (2)    $ 573,368  

Thomas Mawhinney

     -         -    

Allison Mnookin

     -         -    

Rory O’Driscoll

     -         -    

Steven Piaker

     -         -    

 

(1)

The amounts reported in the Option Awards column represent the grant date fair value of the stock options granted to our non-employee directors during fiscal 2019 as computed in accordance with FASB Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 8 of the notes to our consolidated financial statements included in this prospectus. Note that the amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by our non-employee directors from the stock options.

(2)

As of September 30, 2019, Mr. Kight held a nonstatutory stock option to purchase 100,000 shares, with a right to early exercise, vesting at a rate of 1/3rd annually on the anniversary of the vesting start date of May 15, 2019, subject to

 

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  continuous service on each such date, plus acceleration of 100% of the then-unvested options in the event of a change in control. Any unvested shares acquired upon early exercise are subject to a repurchase right held by us at the original purchase price.

In July 2019, we granted each of Mr. Cakebread and Ms. Mnookin nonstatutory stock options to purchase 100,000 shares of our common stock, with a right to early exercise, that vest at a rate of 1/3rd annually on the first three anniversaries of the vesting start dates of May 28, 2019, and July 3, 2019, respectively, subject to continuous service of such director on each applicable vesting date, plus acceleration of 100% of the then-unvested stock options in the event of a change in control. Any unvested shares acquired upon early exercise are subject to a repurchase right held by us at the original purchase price.

Before this offering, we did not have a formal policy to provide any cash or equity compensation to our non-employee directors for their service on our board of directors or committees of our board of directors. In connection with this offering, our board of directors expects to approve a non-employee director compensation policy, which will take effect following the completion of this offering.

 

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EXECUTIVE COMPENSATION

The following tables and accompanying narrative set forth information about the fiscal 2019 compensation provided to our principal executive officer and the two most highly compensated executive officers (other than our principal executive officer) who were serving as executive officers as of June 30, 2019. These executive officers were René Lacerte, our Chief Executive Officer, John Rettig, our Chief Financial Officer and Executive Vice President, Finance and Operations, and Bora Chung, our Senior Vice President, Product, and we refer to them in this section as our “named executive officers.”

2019 Summary Compensation Table

The following table presents summary information regarding the total compensation for services rendered in all capacities that was awarded to, earned by, or paid to our named executive officers for fiscal 2019.

 

Name and Principal Position

  Salary
($)
    Bonus
($)
    Option
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    All Other
Compensation
($)
    Total ($)  

René Lacerte,

  $ 350,000     $ 10,000 (3)    $ 4,814,801     $ 231,763     $ -       $ 5,406,564  

Chief Executive Officer

           

John Rettig,

  $ 300,000     $ 54,024 (4)    $ 2,212,485     $ 161,830     $ 5,980 (5)    $ 2,734,319  

Chief Financial Officer and Executive Vice President, Finance and Operations

           

Bora Chung,

  $ 154,247 (7)    $ 25,000 (8)    $ 1,988,114     $ 62,735     $ -       $ 2,230,096  

Senior Vice President, Product(6)

           

 

(1)

Amounts represent the aggregate grant date fair value of the stock options awarded to the named executive officer during fiscal 2019 in accordance with FASB Accounting Standards Codification Topic 718. The assumptions used in calculating the grant date fair value of the stock options reported in the Option Awards column are set forth in Note 8 of the notes to our consolidated financial statements included in this prospectus. Such grant-date fair market value does not take into account any forfeitures related to service-based vesting conditions that may occur. Note that the amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value that may be received by our named executive officers from the stock options.

(2)

The amounts reported represent payments made under our 2019 Executive Bonus Plan in respect of service in fiscal 2019, as described below in “—Non-Equity Incentive Plan Awards.”

(3)

This amount represents a $10,000 spot bonus paid in February 2019.

(4)

This amount represents (i) a $10,000 spot bonus paid in August 2018, (ii) a $3,000 spot bonus paid in November 2018, (iii) a $40,000 spot bonus paid in February 2019, and (iv) a $1,024 bonus for 5 years of service paid in June 2019.

(5)

This amount reported represents Mr. Rettig’s transportation allowance.

(6)

Ms. Chung commenced employment with us in December 2018 and therefore her base salary and non-equity incentive plan compensation set forth in the table above reflect amounts actually paid with respect to the portion of fiscal 2019 in which she was employed with us.

(7)

Ms. Chung commenced employment in December 2018 at an initial base salary of $275,000.

(8)

This amount represents a cash sign-on bonus.

Non-Equity Incentive Plan Awards

Our named executive officers participated in our 2019 Executive Bonus Plan, under which semi-annual bonuses are determined based on the achievement of corporate and individual performance objectives. For fiscal 2019, performance objectives included metrics related to our revenue. We made

 

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payments based on individual and corporate performance in February 2019 and August 2019 in respect of service in fiscal 2019.

Equity Compensation

From time to time, we grant equity awards in the form of stock options to our named executive officers, which are generally subject to vesting based on each named executive officer’s continued service with us. Each of our named executive officers currently holds outstanding options to purchase shares of our common stock that were granted under our 2006 Plan and 2016 Plan, as set forth in the table below titled “Outstanding Equity Awards at 2019 Fiscal Year-End.”

Outstanding Equity Awards at 2019 Fiscal Year-End

The following table presents, for each of our named executive officers, information regarding outstanding stock options as of June 30, 2019.

 

     Option Awards(1)  
     Grant Date     Number of Securities Underlying Unexercised
Options
     Exercise
Price
($)
     Expiration Date  

Name

  Exercisable (#)      Unexercisable (#)  

René Lacerte

    

2/4/2015

8/2/2018

2/13/2019

(2) 

(3) 

(4) 

   

327,500

0

0

 

 

 

    

0

375,000

850,000

 

 

 

   $

$

$

2.38

5.26

8.76

 

 

 

    

2/3/2025

8/1/2028

2/12/2029

 

 

 

John Rettig

    

6/10/2014

7/28/2016

8/2/2018

2/13/2019

2/13/2019

(5) 

(6) 

(3) 

(4) 

(7) 

   

409,360

36,458

0

0

21,875

 

 

 

 

 

    

0

13,542

200,000

200,000

153,125

 

 

 

 

 

   $

$

$

$

$

1.72

2.48

5.26

8.76

8.76

 

 

 

 

 

    

6/9/2024

7/27/2026

8/1/2028

2/12/2029

2/12/2029

 

 

 

 

 

Bora Chung

    

2/13/2019

5/15/2019

(8) 

(9) 

   

0

1,041

 

 

    

375,000

48,958

 

 

   $

$

8.76

11.20

 

 

    

2/12/2029

5/14/2029

 

 

 

(1)

All of the outstanding equity awards were granted under the 2016 Plan, unless otherwise indicated.

(2)

Granted under our 2006 Plan. The stock option is fully vested.

(3)

The stock option vests at a rate of 1/48th of the shares of our common stock underlying the stock option each month following the August 2, 2018 vesting commencement date. This award is subject to double trigger vesting acceleration under certain circumstances.

(4)

The stock option vests at a rate of 1/2 of the shares of our common stock underlying the stock option on the two-year anniversary of the December 10, 2018 vesting commencement date and an additional 1/48th of the shares of our common stock underlying the stock option monthly thereafter. This award is subject to double trigger vesting acceleration under certain circumstances.

(5)

Granted under the 2006 Plan. The stock option is fully vested.

(6)

The stock option vests at a rate of 1/48th of the shares of our common stock underlying the stock option each month following the July 27, 2016 vesting commencement date. This award is subject to double trigger vesting acceleration under certain circumstances.

  thereafter. This award is subject to double trigger vesting acceleration under certain circumstances.
(7)

The stock option vests at a rate of 1/48th of the shares of our common stock underlying the stock option each month following the December 10, 2018 vesting commencement date. This award is subject to double trigger vesting acceleration under certain circumstances.

(8)

The stock option vests at a rate of 1/4th of the shares of our common stock underlying the stock option on the one-year anniversary of the December 10, 2018 vesting commencement date and an additional 1/48th of the shares of our common stock underlying the stock option monthly thereafter. This award is subject to double trigger vesting acceleration under certain circumstances.

(9)

The stock option vests at a rate of 1/48th of the shares of our common stock underlying the stock option each month following the May 15, 2019 vesting commencement date. This award is subject to double trigger vesting acceleration under certain circumstances.

 

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Offer Letters

We have entered into amended and restated offer letters with each of our named executive officers that will be effective upon the effectiveness of the registration statement of which this prospectus forms a part. In addition, each of our named executive officers has executed our form of standard employee invention assignment and confidentiality agreement. Any potential payments and benefits due upon a termination of employment or a change of control of us are further described below in the section titled “Potential Payments upon Termination or Change of Control.”

Rene Lacerte

In November 2019, we entered into an offer letter with Mr. Lacerte, our Chief Executive Officer and a member of our board. This offer letter provides for an annual base salary of $425,000. Mr. Lacerte is an at-will employee and does not have a fixed employment term. He is eligible to participate in our annual performance bonus plan and employee benefit plans, including health insurance, that we offer to our employees.

John Rettig

In May 2014, we entered into an offer letter with Mr. Rettig, our Chief Financial Officer. This offer letter was amended and restated in November 2019. The amended and restated offer letter provides for an annual base salary of $350,000. Mr. Rettig is an at-will employee and does not have a fixed employment term. He is eligible to participate in our annual performance bonus plan and employee benefit plans, including health insurance, that we offer to our employees.

Bora Chung

In October 2018, we entered into an offer letter with Ms. Chung, our Senior Vice President, Product. This offer letter was amended and restated in November 2019. The amended and restated offer letter provides for an annual base salary of $300,000. Ms. Chung is an at-will employee and does not have a fixed employment term. She is eligible to participate in our annual performance bonus plan and employee benefit plans, including health insurance, that we offer to our employees.

Potential Payments upon Termination or Change in Control

We entered into change in control and severance agreements with each of our executive officers, including our named executive officers, which provide for the following benefits if the executive is terminated by us without cause (as such term is defined in the change in control and severance agreement) outside of a change in control (as such term is defined in the change in control and severance agreement) in exchange for a customary release of claims: (i) a lump sum severance payment of six months base salary for our executive officers (eighteen months for our Chief Executive Officer and twelve months for our Chief Financial Officer), (ii) a lump sum payment equal to the executive officer’s then-current target bonus opportunity on a pro-rated basis, and (iii) payment of premiums for continued medical benefits (or equivalent cash payment if applicable law so requires) for the same period of time as the salary severance.

If the executive officer’s employment is terminated by us without cause or by the executive for good reason within the three months preceding a change in control (but after a legally binding and definitive agreement for a potential change of control has been executed) or within the twelve months following a change in control, the change in control and severance agreements provide the following benefits in exchange for a customary release of claims: (i) a lump sum severance payment of twelve months base salary and 100% of target bonus for our executive officers (eighteen months base

 

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salary and 150% target bonus for our Chief Executive Officer, (ii) a lump sum payment equal to the executive officer’s then-current target bonus opportunity on a pro-rated basis, (iii) 100% acceleration of any then-unvested equity awards, and (iv) payment of premiums for continued medical benefits (or equivalent cash payment if applicable law so requires) for the same period of time as the salary severance . Each change in control and severance agreement is in effect for three years, with automatic renewals unless notice is given by us to the executive officer three months prior to expiration.

The benefits under the change in control and severance agreements supersede all other cash severance and vesting acceleration arrangements. This summary is qualified in its entirety by reference to the actual text of the change in control and severance agreements, which are filed as exhibits to the registration statement of which this prospectus is a part.

Employee Benefit and Stock Plans

We believe that our ability to grant equity-based awards is a valuable compensation tool that enables us to attract, retain, and motivate our employees, consultants, and directors by aligning their financial interests will those of our stockholders. The principal features of our equity incentive plans are summarized below. These summaries are qualified in their entirety by reference to the actual text of the plans, which are filed as exhibits to the registration statement of which this prospectus is a part.

2006 Equity Incentive Plan

Our 2006 Plan was initially adopted by the board of directors and approved by our stockholders in April 2006, and was amended most recently in October 2015. The 2006 Plan was terminated in 2016 when the 2016 Plan was adopted and no new grants under the 2006 Plan were made after such time. Outstanding awards under the 2006 Plan continue to remain subject to the terms of the 2006 Plan and applicable award agreements until such awards are exercised or until they terminate or expire by their terms. The 2006 Plan allowed for the grant of stock options and shares of restricted stock. As of September 30, 2019, 1,550,247 shares of our common stock were reserved for issuance pursuant to outstanding awards under our 2006 Plan.

Administration.    Our 2006 Plan is administered by our board of directors or a committee appointed by our board of directors referred to herein as the “administrator.” Subject to the terms of the 2006 Plan, the administrator has the authority to, among other things, select the persons to whom awards were granted, construe and interpret our 2006 Plan as well as to prescribe, amend, and rescind rules and regulations relating to the 2006 Plan and awards granted pursuant to the 2006 Plan.

Eligibility.    Pursuant to the 2006 Plan, we could grant incentive stock options only to our employees or the employees of our parent or subsidiaries, as applicable (including officers and directors who are also employees). We could grant non-statutory stock options, shares of restricted stock, and RSUs to our employees, directors, and consultants or the employees, directors, and consultants of our parent or subsidiaries, as applicable.

Options.    The 2006 Plan provided for the grant of both (i) incentive stock options, which are intended to qualify for tax treatment as set forth under Section 422 of the Internal Revenue Code of 1986, as amended (Code) and (ii) non-statutory stock options to purchase shares of our common stock, each at a stated exercise price. The exercise price of each stock option to which Section 25102 of the California Corporations Code applied must have been at least equal to 85% of the fair market value of our common stock on the date of grant, except that incentive stock options granted to any individual who owned more than ten percent of the total combined voting power of all classes of our capital stock must have had an exercise price at least equal to 110% of the fair market value of our

 

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common stock on the date of grant. The administrator has the authority to determine the vesting schedule applicable to each option. The maximum permitted term of options granted under our 2006 Plan was ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who owns more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant. As of September 30, 2019, options under the 2006 Plan to purchase 4,668,483 shares of common stock had been exercised and options under the 2006 Plan to purchase 1,550,247 of shares of common stock remained outstanding, with a weighted-average exercise price of $1.98 per share.

Restricted Stock Awards.    Awards of restricted stock represent an offer by us to sell shares of our common stock subject to restrictions which may lapse based on terms and conditions determined by the administrator. The purchase price of each restricted stock award to which Section 25102(o) of the California Corporations Code applied must have been at least equal to 85% of the fair market value of our common stock on the date of grant or at the time the purchase was consummated, except that in the case of a sale to any individual who owned more than ten percent of the total combined voting power of all classes of our capital stock, the purchase price must have been 100% of the fair market value of our common stock on the date of grant or at the time the purchase was consummated. Holders of restricted stock are entitled to vote and are entitled to receive all dividends and distributions with respect to such shares. Any dividends or stock distributions paid pursuant to any unvested shares of restricted stock will be subject to the same restrictions on transferability and forfeiture as the restricted stock. As of June 30, 2019, no shares of restricted stock remain outstanding under the 2006 Plan.

Other Awards.    The 2006 Plan also provided for the grant of stock appreciation rights and RSUs, neither of which were granted prior to the termination of the 2006 Plan.

Transferability.    Unless otherwise determined by the administrator, awards under the 2006 Plan generally may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will, the laws of descent and distribution and, with respect to non-statutory stock options, by instrument to an inter vivos or testamentary trust in which the non-statutory stock options are to be passed to beneficiaries upon the death of the trustor, or by gift to a qualified family member.

Change of Control.    In the event of our dissolution or liquidation, a combination transaction (as defined in the 2006 Plan), or a sale of all or substantially all of our assets, the 2006 Plan provides that any then-outstanding awards will be treated in the manner provided for in the applicable transaction document which may provide for (i) the assumption, conversion or replacement of such awards by the successor or acquiring company, which assumption, conversion or replacement will be binding on all participants, (ii) the substitution of equivalent awards or the provision of substantially similar consideration as is provided to our stockholders (after taking into account the existing provisions of the awards), or (iii) the substitution of similar shares or other property subject to repurchase restrictions and other provisions that are no less favorable to the participant than those which applied to such outstanding shares immediately prior to the transaction. In the event the successor or acquiring company refuses to assume, convert, replace or substitute awards as provided above, then any awards that are not so assumed, converted, replaced or substituted will expire with respect to the unissued shares subject to such awards, at such times and on such conditions as the board will determine, but no later than immediately prior to the consummation of the transaction.

Adjustments.    In the event the number of outstanding shares of our common stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, spin-off or similar change in our capital structure without consideration, the exercise prices and purchase prices of, and number of shares subject to, then-outstanding awards will be proportionately adjusted, subject to any required action by the board or our stockholders.

 

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Exchange, Repricing and Buyout of Awards.    The repricing of options is permitted under the 2006 Plan without prior stockholder approval. The administrator may, at any time or from time to time, authorize us, with the consent of the respective participants, to issue new awards in exchange for the surrender and cancellation of any, or all, outstanding awards. The administrator may at any time buy from a participant an award previously granted with payment in cash, shares of our common stock (including restricted stock) or other consideration, based on such terms and conditions as the administrator and the participant may agree.

Any outstanding awards granted under the 2006 Plan will remain outstanding following the offering, subject to the terms of our 2006 Plan and applicable award agreements, until such awards are exercised or until they terminate or expire by their terms.

2016 Equity Incentive Plan

In February 2016, we adopted the 2016 Equity Incentive Plan (the 2016 Plan) as most recently amended on July 22, 2019. The purposes of the 2016 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 our business.

Share Reserve.    As of September 30, 2019, we had 10,219,365 shares of our common stock reserved for issuance pursuant to grants under our 2016 Plan of which 181,191 shares remained available for grant. As of September 30, 2019, options to purchase 341,652 shares had been exercised and options to purchase 9,696,522 shares remained outstanding, with a weighted-average exercise price of $7.78 per share. As of September 30, 2019, no shares of restricted stock, no stock appreciation rights and no RSUs were granted under the 2016 Plan, and no such awards are expected to be granted prior to the offering; provided that certain options granted under the 2016 Plan are early exercisable and may be exercised for unvested shares of our common stock subject to a repurchase right. No new awards will be granted under the 2016 Plan after the offering.

Administration.    Our 2016 Plan is administered by our board of directors or a committee appointed by our board of directors, referred to herein as the “administrator.” Subject to the terms of the 2016 Plan, the administrator has the authority to, among other things, select the persons to whom awards will be granted, construe and interpret our 2016 Plan as well as to prescribe, amend and rescind rules and regulations relating to the 2016 Plan and awards granted thereunder. The administrator may modify awards subject to the terms of the 2016 Plan.

Eligibility.    Pursuant to the 2016 Plan, we may grant incentive stock options only to our employees or the employees of our parent or subsidiaries, as applicable (including officers and directors who are also employees). We may grant non-statutory stock options, RSUs, stock appreciation rights and shares of restricted stock to our employees (including officers and directors who are also employees), non-employee directors, and consultants, or the employees, directors, and consultants of our parent and subsidiaries, as applicable.

Options.    The 2016 Plan provides for the grant of both (i) incentive stock options, which are intended to qualify for tax treatment as set forth under Section 422 of the Code and (ii) non-statutory stock options to purchase shares of our common stock, each at a stated exercise price. The exercise price of each option must be at least equal to the fair market value of our common stock on the date of grant (unless otherwise determined by the administrator). However, the exercise price of any incentive stock option granted to an individual who owns more than ten percent of the total combined voting power of all classes of our capital stock must be at least equal to 110% of the fair market value of our common stock on the date of grant. The administrator will determine the vesting schedule applicable to each option. The maximum permitted term of options granted under our 2016 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an

 

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individual who owns more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant.

Restricted Stock, RSUs, Stock Appreciation Rights.    In addition, the 2016 Plan allows for the grant of restricted stock awards, RSUs, and stock appreciation rights, with terms as generally determined by the administrator (in accordance with the 2016 Plan) and to be set forth in an award agreement. We have not granted any shares of restricted stock, any RSUs or any stock appreciation rights under the 2016 Plan and no such awards are expected to be granted prior to the offering; provided that certain options granted under the 2016 Plan are early exercisable and may be exercised for unvested shares of our common stock subject to a repurchase right.

Limited Transferability.    Unless otherwise determined by the administrator, awards under the 2016 Plan generally may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will, the laws of descent and distribution and, with respect to non-statutory stock options, by instrument to an inter vivos or testamentary trust in which the non-statutory stock options are to be passed to beneficiaries upon the death of the trustor, or by gift to a qualified family member.

Change of Control.    In the event that we are subject to an “acquisition” or “other combination” (as defined in the 2016 Plan and generally meaning, collectively, a merger, a sale or transfer of more than 50% of the voting power of all of our outstanding securities, or a sale of all or substantially all of the assets of ours), the 2016 Plan provides that awards will be subject to the agreement evidencing such acquisition or other combination, which agreement need not treat all awards in a similar manner. Such agreement may, without the participant’s consent, provide for the continuation of outstanding awards, the assumption or substitution of awards, the acceleration of vesting of awards, the settlement of awards (whether or not vested) in cash, securities, or other consideration, or the cancellation of such awards for no consideration.

Adjustments.    In the event that the number of outstanding shares of our common stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, spin-off, or other change in our capital structure affecting our shares without consideration, then in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2016 Plan (i) the number of shares reserved for issuance under the 2016 Plan, (ii) the exercise prices of and number of shares subject to outstanding options and stock appreciation rights, and (iii) the purchase prices of and/or number of shares subject to other outstanding awards will (to the extent appropriate) be proportionately adjusted (subject to required action by the board or our stockholders).

Exchange, repricing and buyout of awards.    The administrator may, with the consent of the respective participants, issue new awards in exchange for the surrender and cancelation of any or all outstanding awards. The administrator may also reduce the exercise price of options or stock appreciation rights or buy an award previously granted with payment in cash, shares or other consideration, in each case, subject to the terms of the 2016 Plan.

Amendment; Termination.    Our board of directors may amend or terminate the 2016 Plan at any time and may terminate any and all outstanding options, RSUs, or stock appreciation rights upon a dissolution or liquidation of us, provided that certain amendments will require shareholder approval or participant consent. We expect to terminate the 2016 Plan and will cease issuing awards thereunder upon the effective date of our 2019 Equity Incentive Plan (described below), which is the date immediately prior to the date of the effectiveness of the registration statement of which this prospectus forms a part. Any outstanding awards granted under the 2016 Plan will remain outstanding following the offering, subject to the terms of our 2016 Plan and applicable award agreements, until such awards are exercised or until they terminate or expire by their terms.

 

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2019 Equity Incentive Plan

In November 2019, our board of directors adopted and our stockholders approved the 2019 Plan that will become effective on the date immediately prior to the effectiveness of the registration statement of which this prospectus forms a part and will serve as the successor to our 2016 Plan. Our 2019 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards, cash awards, and stock bonus awards. We intend to initially reserve 7,100,000 shares of our common stock, plus any reserved shares not issued or subject to outstanding grants under the 2016 Plan on the effective date of the 2019 Plan, for issuance pursuant to awards granted under our 2019 Plan. The number of shares reserved for issuance under our 2019 Plan will increase automatically on July 1 of each of 2020 through 2029 by the number of shares equal to the lesser of 5% of the total number of outstanding shares of our common stock as of the immediately preceding June 30, or a number as may be determined by our board of directors. In addition, the following shares of our common stock will be available for grant and issuance under our 2019 Plan:

 

   

shares subject to options or SARs granted under our 2019 Plan that cease to be subject to the option or SAR for any reason other than exercise of the option or SAR;

 

   

shares subject to awards granted under our 2019 Plan that are subsequently forfeited or repurchased by us at the original issue price;

 

   

shares subject to awards granted under our 2019 Plan that otherwise terminate without shares being issued;

 

   

shares surrendered, canceled or exchanged for cash or the same type of award or a different award (or combination thereof);

 

   

shares subject to awards under the 2019 Plan that are used to pay the exercise price of an award or withheld to satisfy the tax withholding obligations related to any award;

 

   

shares issuable upon the exercise of options or subject to other awards under our 2016 or our 2006 Plan that cease to be subject to such options or other awards by forfeiture or otherwise after the effective date of the 2019 Plan;

 

   

shares issued pursuant to outstanding awards under our 2016 Plan and 2006 Plan that are forfeited or repurchased by us at the original issue price after the effective date of the 2019 Plan; and

 

   

shares subject to awards under our 2006 Plan or 2016 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award.

The following is a description of the material terms of the 2019 Plan. The summary below does not contain a complete description of all provisions of the 2019 Plan and is qualified in its entirety by reference to the 2019 Plan, a copy of which is included as an exhibit to the registration statement to which this prospectus forms a part.

Administration.    Our 2019 Plan is expected to be administered by our compensation committee or by our board of directors acting in place of our compensation committee. Subject to the terms and conditions of the 2019 Plan, the compensation committee will have the authority, among other things, to select the persons to whom awards may be granted, construe and interpret our 2019 Plan as well as to determine the terms of such awards and prescribe, amend, and rescind the rules and regulations relating to the 2019 Plan or any award granted thereunder. The 2019 Plan provides that the board of directors or compensation committee may delegate its authority, including the authority to grant awards, to one or more officers to the extent permitted by applicable law, provided that awards granted to non-employee directors may only be determined by our board of directors.

Eligibility.    Our 2019 Plan provides for the grant of awards to our employees, directors, and consultants. No non-employee director may receive awards under our 2019 Plan that, when combined

 

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with cash compensation received for service as a non-employee director, exceed $750,000 in value (measured as of the date of grant) in any fiscal year.

Options.    The 2019 Plan provides for the grant of both incentive stock options intended to qualify under Section 422 of the Code, and non-statutory stock options to purchase shares of our common stock at a stated exercise price. Incentive stock options may only be granted to employees, including officers and directors who are also employees. The exercise price of stock options granted under the 2019 Plan must be at least equal to the fair market value of our common stock on the date of grant. Incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock must have an exercise price of at least 110% of the fair market value of our common stock on the date of grant. Subject to stock splits, dividends, recapitalizations or similar events, no more than 21,300,000 shares may be issued pursuant to the exercise of incentive stock options granted under the 2019 Plan.

Options may vest based on service or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable, with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2019 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant.

Restricted Stock Awards.    An award of restricted stock is an offer by us to sell shares of our common stock subject to restrictions that may lapse based on the satisfaction of service or achievement of performance conditions. The price, if any, of an award of restricted stock will be determined by the compensation committee. Unless otherwise determined by the compensation committee, holders of restricted stock will be entitled to vote and to receive any dividends or stock distributions paid pursuant to any unvested shares of restricted stock. If any such dividends or distributions are paid in shares of common stock, the shares will be subject to the same restrictions on transferability and forfeiture as the shares of restricted stock with respect to which they were paid.

Stock Appreciation Rights.    A SAR provides for a payment, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and a pre-determined exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The exercise price of a SAR must be at least the fair market value of a share of our common stock on the date of grant. SARs may vest based on service or achievement of performance conditions, and may not have a term that is longer than ten years from the date of grant.

Restricted Stock Units.    RSUs represent the right to receive shares of our common stock at a specified date in the future, and may be subject to vesting based on service or achievement of performance conditions. Settlement of earned RSUs may be made as soon as practicable after the date determined at the time of grant or on a deferred basis in the discretion of the committee, and may be settled in cash, shares of our common stock or a combination of both. No RSU may have a term that is longer than ten years from the date of grant.

Performance Awards.    Performance awards granted pursuant to the 2019 Plan may be in the form of a cash bonus, or an award of performance shares or performance units denominated in shares of our common stock, that may be settled in cash, property or by issuance of those shares subject to the satisfaction or achievement of specified performance conditions.

Stock Bonus Awards.    A stock bonus award provides for payment in the form of cash, shares of our common stock or a combination thereof, based on the fair market value of shares subject to such

 

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award as determined by our compensation committee. The awards may be subject to vesting restrictions based on continued service or performance conditions.

Cash Awards.    A cash award is an award that is denominated in, or payable to an eligible participant solely in, cash.

Dividend Equivalent Rights.    Dividend equivalent rights may be granted at the discretion of our compensation committee and represent the right to receive the value of dividends, if any, paid by us in respect of the number of shares of our common stock underlying an award. Dividend equivalent rights will be subject to the same vesting or performance conditions as the underlying award and will be paid only at such time as the underlying award has become fully vested. Dividend equivalent rights may be settled in cash, shares or other property, or a combination of thereof as determined by the compensation committee.

Change of Control.    In the event of a “corporate transaction” (as defined in the 2019 Plan), awards may be assumed, converted, replaced, or substituted by the successor corporation, which assumption, conversion, replacement or substitution will be binding on all participants. In the event of a substitution, the successor corporation may substitute equivalent awards or provide substantially similar consideration to participants as was provided to stockholders (after taking into account the existing provisions of the awards). In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace, or substitute awards, as provided above, pursuant to a corporate transaction, then immediately prior to the corporate transaction all such awards shall expire on such corporate transaction at such time and on such conditions as our board of directors determine. In addition, in the event such successor or acquiring corporation (if any) refuses to assume, convert, replace, or substitute awards, as provided above, pursuant to a corporate transaction, the committee will notify the participant in writing or electronically that such participant’s award will, if exercisable, be exercisable for a period of time determined by the committee in its sole discretion, and such award will terminate upon the expiration of such period. Awards need not all be treated in the same manner in a corporate transaction, and treatment may vary from award to award and/or from participant to participant. Notwithstanding the foregoing, the vesting of all awards granted to our non-employee directors will accelerate and such awards will become exercisable (to the extent applicable) in full prior to the consummation of a corporate transaction at such times and on such conditions as the committee determines.

Adjustment.    In the event of a change in the outstanding shares of our common stock without consideration by reason of a stock dividend, extraordinary dividend or distribution, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, spin-off, or similar change in our capital structure, appropriate proportional adjustments will be made to (i) the number and class of shares reserved for issuance under our 2019 Plan and the incentive stock option limit; (ii) the exercise prices of options and SARs; (iii) number and class of shares subject to outstanding awards; and (iv) any applicable maximum award limits pursuant to the 2019 Plan.

Clawback; Transferability.    All awards will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the board of directors or required by law to the extent set forth in such policy or applicable agreement. Except in limited circumstances, awards granted under our 2019 Plan may generally not be transferred in any manner prior to vesting other than by will or by the laws of descent and distribution.

Amendment and Termination; Exchange Program.    Our board of directors may amend our 2019 Plan at any time, subject to stockholder approval as may be required. Our 2019 Plan will terminate ten years from the date our board of directors adopts the plan, unless it is terminated earlier by our board of directors. No termination or amendment of the 2019 Plan may adversely affect any then-outstanding

 

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award without the consent of the affected participant, except as is necessary to comply with applicable laws. Subject to the foregoing, the compensation committee may at any time increase or decrease the exercise price applicable to outstanding options or SARs, or pay cash or issue new awards in exchange for the surrender and cancellation of any, or all, outstanding awards.

2019 Employee Stock Purchase Plan

In November 2019, our board of directors adopted and our stockholders approved the ESPP that will become effective upon the effectiveness of the registration statement of which this prospectus forms a part in order to enable eligible employees to purchase shares of our common stock at a discount with accumulated payroll deductions. Our ESPP is intended to qualify under Section 423 of the Code.

The following is a description of the material terms of the ESPP. The summary below does not contain a complete description of all provisions of the ESPP and is qualified in its entirety by reference to the ESPP, a copy of which will be included as an exhibit to the registration statement to which this prospectus forms a part.

Share Reserve.     We intend to initially reserve 1,400,000 shares of our common stock for sale under our ESPP. The aggregate number of shares reserved for sale under our ESPP will increase automatically on July 1st of each of 2020 through 2029 by the number of shares equal to the lesser of 1% of the total outstanding shares of our common stock as of the immediately preceding June 30 or a lower number of shares as may be determined by our board of directors or compensation committee in any particular year. The aggregate number of shares issued over the term of our ESPP, subject to stock splits, recapitalizations, or similar events, may not exceed 14,000,000 shares of our common stock.

Administration.    Our compensation committee will administer our ESPP subject to the terms and conditions of the ESPP. Among other things, the compensation committee will have the authority to determine eligibility for participation in the ESPP, designate separate offerings under the plan, and construe, interpret, and apply the terms of the plan.

Eligibility.    Employees eligible to participate in any offering pursuant to the ESPP generally include any employee that is employed by us at the beginning of the offering period. While our employees generally are eligible to participate in our ESPP, our compensation committee may in its discretion elect to exclude employees who work fewer than 20 hours per week or fewer than five months in a calendar year. In addition, employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our ESPP are ineligible to participate in our ESPP. We may impose additional restrictions on eligibility within the limits permitted by the Code.

Offering Periods; Enrollment.    Under our ESPP, eligible employees will be offered the option to purchase shares of our common stock at a discount over a series of offering periods. Each offering period may itself consist of one or more purchase periods. No offering period may be longer than 27 months and each offering period will be determined by our compensation committee. It is currently expected that when the first offering period commences, our employees who meet the eligibility requirements for participation in that offering period will be eligible to enroll. For subsequent offering periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent offering periods. An employee’s participation automatically ends upon a termination of employment for any reason.

Offerings; Payroll Deductions; Limitations.    Under our ESPP, eligible employees will be offered the option to purchase shares of our common stock at a discount over a series of offering periods by

 

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accumulating funds through payroll deductions of between 1% and 15% of their compensation. The purchase price for shares of our common stock purchased under the ESPP will be 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period and (ii) the date of purchase. However, no participant may purchase more than 5,000 shares on any one purchase date. Our compensation committee, in its discretion, may set a lower maximum number of shares which may be purchased. In addition, no participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar years, that has a fair market value of more than $25,000, determined as of the first day of the applicable offering period, for each calendar year in which that right is outstanding.

Adjustments upon Recapitalization.    If the outstanding shares of our common stock is changed by stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification, or similar change in our capital structure without consideration, then our compensation committee will proportionately adjust the number and class of common stock that is available under the ESPP, the purchase price and number of shares any participant has elected to purchase as well as the maximum number of shares which may be purchased by participants.

Change of Control.    If we experience a corporate transaction (as defined in the ESPP), each outstanding right to purchase shares under our ESPP will be assumed or an equivalent option substituted by the successor corporation. In the event that the successor corporation refuses to assume or substitute for the outstanding purchase rights, any offering period that commenced prior to the closing of the proposed corporate transaction will be shortened and terminated on a new purchase date. The new purchase date will occur on or prior to the consummation of the corporate transaction and our ESPP will terminate on the consummation of the corporate transaction.

Transferability.    No participant may assign, transfer, pledge, or otherwise dispose of payroll deductions credited to his or her account, or any rights with regard to an election to purchase shares pursuant to the ESPP other than by will or the laws of descent or distribution.

Amendment; Termination.    The compensation committee may amend, suspend, or terminate the ESPP at any time without stockholder consent, except as required by law. Our ESPP will continue until the earliest to occur of (i) termination of the ESPP by the board of directors, (ii) issuance of all of the shares reserved for issuance under the ESPP, and (iii) the tenth anniversary of the effective date under the ESPP.

401(k) Plan

We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. With certain exceptions, all employees who have attained at least 21 years of age are eligible to participate in the plan on the first day of the month occurring after the employee satisfies the eligibility requirements. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on contributions under the Code. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee’s interest in his or her deferrals contributions is 100% vested when contributed. We may make discretionary matching contributions, which contributions will be subject to vesting conditions.

Limitations on Liability and Indemnification Matters

Our restated certificate of incorporation that will become effective in connection with this offering contains provisions that will limit the liability of our directors for monetary damages to the fullest extent

 

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permitted by the Delaware General Corporation Law (DGCL). 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:

 

   

any breach of the director’s duty of loyalty to us 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 DGCL; or

 

   

any transaction from which the director derived an improper personal benefit.

Our restated certificate of incorporation and our restated bylaws that will become effective in connection with this offering will require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our restated bylaws will also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted, subject to very limited exceptions.

We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers, and certain of our other employees. These agreements, among other things, require us to indemnify our directors, officers, and key employees for certain expenses, including attorneys’ fees, judgments, fines, and settlement amounts actually and reasonably incurred by such director, officer, or key employee in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers, and key employees for the defense of any action for which indemnification is required or permitted.

We believe that these provisions in our restated certificate of incorporation and indemnification agreements are necessary to attract and retain qualified persons such as directors, officers, and key employees. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

At present, we are not aware of any pending litigation or proceeding arising out of any indemnitee’s service to us or any of our subsidiaries or any other company or enterprise to which the person provides services at our request, 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.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers, or persons controlling us, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

We describe below transactions since July 1, 2016, to which we were a party or will be a party, in which the amounts involved exceeded or will exceed $120,000 and any of our directors, executive officers, or beneficial holders of more than 5% of any class of our capital stock had or will have a direct or indirect material interest. Other than as described below, there have not been transactions to which we have been a party other than compensation arrangements, which are described under “Executive Compensation.”

Series H Redeemable Convertible Preferred Stock Financing

Between December 2018 and February 2019, we sold an aggregate of 5,303,344 shares of our Series H redeemable convertible preferred stock at a purchase price of approximately $16.615 per share for an aggregate purchase price of approximately $88.1 million. Each share of our Series H redeemable convertible preferred stock converts automatically into one share of our common stock immediately prior to the completion of this offering.

The purchasers of our Series H redeemable convertible preferred stock are entitled to specified registration rights. For additional information, see “Description of Capital Stock—Registration Rights.” See the section titled “Principal Stockholders” for more details regarding the shares held by certain of these entities.

Ossa Investments Pte. Ltd. (Ossa), a holder of more than 5% of our outstanding capital stock, purchased 324,464 shares of Series H redeemable convertible preferred stock for an aggregate purchase price of $5,391,107.46. In addition, we entered into a side letter agreement with Ossa that provides that for so long as Ossa holds 25% of the shares of Series G redeemable convertible preferred stock and Series H redeemable convertible preferred stock held by Ossa as of the date of the letter agreement, Ossa shall have the right to attend our board meetings in a nonvoting observer capacity, which right terminates upon the closing of this offering.

Series G Redeemable Convertible Preferred Stock Financing

Between June and December 2017, we sold an aggregate of 8,445,940 shares of our Series G redeemable convertible preferred stock at a purchase price of approximately $9.768 per share for an aggregate purchase price of approximately $82.5 million. Each share of our Series G redeemable convertible preferred stock converts automatically into one share of our common stock immediately prior to the completion of this offering.

The purchasers of our Series G redeemable convertible preferred are entitled to specified registration rights. For additional information, see “Description of Capital Stock—Registration Rights.” See the section titled “Principal Stockholders” for more details regarding the shares held by certain of these entities.

The following table summarizes the Series G redeemable convertible preferred stock purchased by affiliates of members of our board of directors and holders of more than 5% of our outstanding capital stock:

 

Name of Stockholder

   Shares of Series G
Redeemable Convertible
Preferred Stock
     Total Purchase Price($)  

Entities affiliated with August Capital(1)

     773,770      $ 7,558,195  

Entities affiliated with DCM(2)

     358,245      $ 3,499,347  

Entities affiliated with Emergence Capital(3)

     20,473      $ 199,995  

Financial Partners Fund I, L.P.(4)

     419,049      $ 4,093,271  

Icon Ventures IV, L.P.(5)

     51,187      $ 500,000  

Ossa Investments Pte. Ltd.(6)

     4,443,079      $ 43,400,001  

Scale Venture Partners IV, L.P.(7)

     383,542      $ 3,746,438  

 

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(1)

Consists of shares purchased by August Capital V Special Opportunities, L.P., which together with August Capital V, L.P. holds more than 5% of our outstanding capital stock. David Hornik, a member of our board of directors, is a general partner and designee of August Capital.

(2)

Consists of shares purchased by DCM Affiliates Fund IV, L.P. and DCM IV, L.P., which together hold more than 5% of our outstanding capital stock. David Chao, a member of our board of directors, is a general partner and designee of DCM.

(3)

Consists of shares purchased by Emergence Capital Associates, L.P., Emergence Capital Partners, L.P. and Emergence Capital Partners-P.A., L.P., which collectively hold more than 5% of our outstanding capital stock. Brian Jacobs, a member of our board of directors, is a general partner and designee of Emergence Capital.

(4)

Financial Partners Fund I, L.P. holds more than 5% of our outstanding capital stock. Steven Piaker, a member of our board of directors, is a general partner and designee of Financial Partners Fund I, L.P.

(5)

Thomas Mawhinney, a member of our board of directors, is a general partner and designee of Icon Ventures IV, L.P.

(6)

Ossa Investments Pte. Ltd. holds more than 5% of our outstanding capital stock.

(7)

Scale Venture Partners IV, L.P. holds more than 5% of our outstanding capital stock. Rory O’Driscoll, a member of our board of directors, is a partner and designee of Scale Venture Partners IV, L.P.

Tenth Amended and Restated Investors’ Rights Agreement

We have entered into an amended and restated investors’ rights agreement with certain holders of our redeemable convertible preferred stock, including entities with which certain of our directors are affiliated. These stockholders are entitled to rights with respect to the registration of their shares following this offering. For a description of these registration rights, see the section titled “Description of Capital Stock—Registration Rights.” Other than these registration rights, all other terms of the amended and restated investors’ rights agreement will terminate in connection with this offering.

Corporate Reorganization

In November 2018, we consummated a reorganization by forming BDC Payments Holdings, Inc. (BDC), which was incorporated in Delaware on August 2, 2018, and Bill.com, LLC (Merger Sub) as a wholly owned subsidiary of BDC. We merged Bill.com, Inc. and Merger Sub, with Bill.com, Inc. as the surviving entity, by issuing identical shares of our capital stock to the stockholders of Bill.com, Inc. in exchange for their equity interest in Bill.com, Inc. After the merger, all of the stockholders of Bill.com, Inc. became 100% stockholders of BDC and Bill.com, Inc. became a wholly owned subsidiary of BDC and subsequently converted to Bill.com, LLC. BDC subsequently changed its name to Bill.com Holdings, Inc. in June 2019.

Ossa Investments Pte. Ltd Stock Purchases

In June 2019, we, Ossa, a holder of more than 5% of our outstanding capital stock, and Eric Chan, our Chief Technology Officer, entered into a stock transfer agreement pursuant to which Mr. Chan sold an aggregate of 20,000 shares of Series B redeemable convertible preferred stock to Ossa at a purchase price of $14.96 per share, for an aggregate purchase price of $299,200.00.

Additionally, in June 2019, we, Ossa and René Lacerte and Joyce Chung, Co-Trustees of the Chung Lacerte Trust Under Trust Agreement dated 2/15/2004 (Lacerte Trust) entered into a stock transfer agreement pursuant to which the Lacerte Trust sold an aggregate of 342,465 shares of Series B redeemable convertible preferred stock and 52,162 shares of Series C redeemable convertible preferred stock to Ossa, each at a purchase price of $14.96 per share, for an aggregate purchase price of $5,903,627.40.

Additionally, in September 2019, Ossa and Fifth Third Capital Holdings, LLC (Fifth Third) entered into a stock transfer agreement, pursuant to which Fifth Third sold an aggregate of 373,880 shares of Series E redeemable convertible preferred stock to Ossa at a purchase price of $16.615 per share, for an aggregate purchase price of $6,212,174.06.

 

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Indemnification Agreements

We will enter into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our restated bylaws will require us to indemnify our directors to the fullest extent not prohibited by DGCL. Subject to very limited exceptions, our restated bylaws will also require us to advance expenses incurred by our directors and officers. For more information regarding these agreements, see the section titled “Executive Compensation—Limitations on Liability and Indemnification Matters.”

Policies and Procedures for Related Party Transactions

Our written related party transactions policy and the charters of our audit committee and nominating and governance committee to be adopted by our board of directors and in effect immediately prior to the completion of this offering require that any transaction with a related person that must be reported under applicable rules of the SEC must be reviewed and approved or ratified by our audit committee. However, if the related party is, or is associated with, a member of the audit committee, the transaction must be reviewed and approved by our nominating and governance committee.

Prior to this offering we had no formal, written policy for the review and approval of related party transactions. However, our practice has been to have all related party transactions reviewed and approved by a majority of the disinterested members of our board of directors, including the transactions described above.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of September 30, 2019, and as adjusted to reflect the sale of common stock in this offering, 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, or group of affiliated persons, who beneficially owned more than 5% of our common stock.

We have determined beneficial ownership in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares of common stock that they beneficially owned, subject to applicable community property laws.

 

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Applicable percentage ownership is based on 60,730,863 shares of our common stock outstanding as of September 30, 2019 and assumes the conversion of all outstanding shares of redeemable convertible preferred stock into an aggregate of 52,434,505 shares of our common stock. For purposes of the table below, we have assumed that 8,823,529 shares of common stock will be issued in this offering and there will be no conversion price adjustment relating to our Series H redeemable convertible preferred stock, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, as described in “Description of Capital Stock.” In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options held by that person or entity that are currently exercisable or that will become exercisable within 60 days of September 30, 2019. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the address of each beneficial owner in the table below is c/o Bill.com Holdings, Inc, 1810 Embarcadero Road, Palo Alto, California 94303.

 

     Shares Beneficially
Owned Before this
Offering
     Shares Beneficially
Owned After this
Offering
 

Name of Beneficial Owner

   Shares      %      Shares      %  

Named Executive Officers and Directors:

           

René Lacerte(1)

     3,784,687        6.2        3,784,687        5.4  

John Rettig(2)

     611,768        1.0        611,768        *  

Bora Chung(3)

     6,250        *        6,250        *  

Steven Cakebread(4)

     100,000        *        100,000        *  

David Chao(5)

     9,877,417        16.3        9,877,417        14.2  

David Hornik(6)

     7,732,765        12.7        7,732,765        11.1  

Brian Jacobs(7)

     4,946,054        8.1        4,946,054        7.1  

Peter Kight(8)

     127,639        *        127,639        *  

Thomas Mawhinney(9)

     3,433,611        5.7        3,433,611        4.9  

Allison Mnookin(10)

     100,000        *        100,000        *  

Rory O’Driscoll(11)

     3,774,183        6.2        3,774,183        5.4  

Steven Piaker(12)

     4,753,167        7.8        4,753,167        6.8  

Total Executive Officers and Directors as a Group (13 people)(13)

     39,447,540        65.0        39,447,540        56.7  

5% Stockholders:

           

Entities affiliated with DCM(14)

     9,877,417        16.3        9,877,417        14.2  

Entities affiliated with August Capital(15)

     7,732,765        12.7        7,732,765        11.1  

Ossa Investments Pte. Ltd.(16)

     5,556,050        9.1        5,556,050        8.0  

Entities affiliated with Emergence Capital(17)

     4,946,054        8.1        4,946,054        7.1  

Financial Partners Fund I, L.P.(18)

     4,753,167        7.8        4,753,167        6.8  

Scale Venture Partners IV, L.P.(19)

     3,774,183        6.2        3,774,183        5.4  

Icon Ventures IV, L.P.(20)

     3,433,611        5.7        3,433,611        4.9  

 

*

Represents beneficial ownership of less than one percent.

(1)

Consists of (i) 315,000 shares of our common stock held by Mr. Lacerte; (ii) 2,755,000 shares of our common stock held by Chung Lacerte Trust; (iii) 270,000 shares of our common stock held in trust by Mr. Lacerte as custodian; and (iv) 444,687 shares of our common stock issuable to Mr. Lacerte upon exercise of stock options within 60 days of September 30, 2019.

(2)

Consists of (i) 58,139 shares of our common stock held by Mr. Rettig; and (ii) 553,629 shares of our common stock issuable to Mr. Rettig upon exercise of stock options within 60 days of September 30, 2019.

(3)

Consists of 6,250 shares of our common stock issuable to Ms. Chung upon exercise of stock options within 60 days of September 30, 2019.

(4)

Consists of 100,000 shares of our common stock issuable to Mr. Cakebread upon exercise of stock options that may be exercised early within 60 days of September 30, 2019.

(5)

Consists of common stock referenced in footnote (14) below that is held of record by entities affiliated with DCM.

 

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(6)

Consists of common stock referenced in footnote (15) below that is held of record by entities affiliated with August Capital.

(7)

Consists of common stock referenced in footnote (17) below that is held of record by entities affiliated with Emergence Capital.

(8)

Consists of (i) 27,639 shares of our common stock held by Mr. Kight; and (ii) 100,000 shares of our common stock issuable to Mr. Kight upon exercise of stock options that may be exercised early within 60 days of September 30, 2019.

(9)

Consists of common stock referenced in footnote (20) below that is held of record by Icon Ventures IV, L.P.

(10)

Consists of 100,000 shares of our common stock issuable to Ms. Mnookin upon exercise of stock options that may be exercised early within 60 days of September 30, 2019.

(11)

Consists of common stock referenced in footnote (19) below that is held of record by Scale Venture Partners IV, L.P.

(12)

Consists of common stock referenced in footnote (18) below that is held of record by Financial Partners Fund I, L.P.

(13)

Consists of (i) 37,942,975 shares of our common stock held directly and indirectly by our executive officers and directors; and (ii) 1,504,565 shares of our common stock issuable to them upon exercise of stock options within 60 days of September 30, 2019.

(14)

Consists of (i) 244,958 shares of our common stock held by DCM Affiliates Fund IV, L.P. and (ii) 9,632,459 shares of our common stock held by DCM IV, L.P., collectively the DCM entities. DCM Investment Management IV, L.P. is the general partner of the DCM entities. DCM International IV, Ltd. is the general partner of DCM Investment Management IV, L.P. David Chao, the director of DCM International IV, Ltd. and a member of our board of directors, may be deemed to have sole voting and investment power with respect to the shares held by the DCM entities. The address for the DCM entities is 2420 Sand Hill Road, Suite 200, Menlo Park, California 94025.

(15)

Consists of (i) 6,958,994 shares of our common stock held by August Capital V, L.P. for itself and as nominee for August Capital Strategic Partners V, L.P. and related individuals and (ii) 773,771 shares of our common stock held by August Capital V Special Opportunities, L.P. for itself and as nominee for August Capital Strategic Partners V, L.P. and related individuals, collectively the August Capital entities. August Capital Management V, L.L.C. is the general partner of the August Capital entities and may be deemed to have sole voting power and sole investment power over the shares held by the August Capital entities. David Hornik, a member of our board of directors, and Howard Hartenbaum are the members of August Capital Management V, L.L.C. and may be deemed to have shared voting and investment power with respect to the shares held by the August Capital entities. The address for the August Capital entities is PMB #456, 660 4th Street, San Francisco, California 94107.

(16)

Consists of 5,556,050 shares of our common stock held by Ossa Investments Pte. Ltd. Ossa Investments Pte. Ltd. is a direct wholly-owned subsidiary of Hotham Investments Pte Ltd (Hotham), which in turn is a direct wholly-owned subsidiary of Fullerton Management Pte Ltd (Fullerton), which in turn is a direct wholly-owned subsidiary of Temasek Holdings (Private) Limited (Temasek). In such capacities, each of Hotham, Fullerton and Temasek may be deemed to have voting and dispositive power over the shares held by Ossa Investments Pte. Ltd. The address for Ossa Investments Pte. Ltd., Fullerton and Temasek is 60B Orchard Road #06-18 Tower 2, The Atrium@Orchard, Singapore 238891.

(17)

Consists of (i) 339,098 shares of our common stock held by Emergence Capital Associates, L.P.; (ii) 3,393,582 shares of our common stock held by Emergence Capital Partners, L.P.; and (iii) 1,213,374 shares of our common stock held by Emergence Capital Partners-P.A., L.P., collectively, the Emergence Capital entities. Emergence GP Partners, LLC is the sole general partner of Emergence Equity Partners, L.P., which is the sole general partner of the Emergence Capital entities. Jason Green and Gordon Ritter are managers of Emergence GP Partners, LLC and share voting and dispositive control over the shares held by the Emergence Capital entities. Brian Jacobs, a member of our board of directors, is a manager of Emergence Equity Partners, L.P. and shares voting and dispositive control with respect to the shares held by the Emergence Capital entities. Each manager disclaims beneficial ownership of the shares except to the extent of his pecuniary interest therein. The address for the Emergence Capital entities is 160 Bovet Road, Suite 300, San Mateo, California 94402.

(18)

Consists of 4,753,167 shares of our common stock held by Financial Partners Fund I, L.P. Napier Park Global Capital GP LLC is the general partner of Financial Partners Fund I, L.P., which has delegated management responsibility to Napier Park Global Capital (US), L.P. The Financial Partners team of Napier Park Global Capital (US), L.P., under the authority and supervision of Steven Piaker, a member of our board of directors, and Manu Rana, is deemed to have sole voting and investment power with respect to the shares held by Financial Partners Fund I, L.P. The address for Financial Partners Fund I, L.P. is 280 Park Avenue, 3rd Floor, New York, New York 10017.

(19)

Consists of 3,774,183 shares of our common stock held by Scale Venture Partners IV, L.P. Scale Venture Management IV, LLC is the ultimate general partner of Scale Venture Partners IV, L.P. Rory O’Driscoll, a member of our board of directors, Stacey Bishop, and Andrew Vitus are managers of Scale Venture Management IV, LLC and share voting and dispositive power with respect to the shares held by Scale Venture Partners IV, L.P. The address for Scale Venture Partners IV, L.P. is 950 Tower Lane, Suite 1150, Foster City, California 94404.

(20)

Consists of 3,433,611 shares of our common stock held by Icon Ventures IV, L.P. Icon Management Associates IV, LLC is the general partner of Icon Ventures IV, L.P. Joseph Horowitz, Thomas Mawhinney, a member of our board of directors, and Jeb Miller are the managing members of Icon Management Associates IV, LLC and share voting and dispositive control with respect to the shares held by Icon Ventures IV, L.P. The address for Icon Ventures IV, L.P. is 505 Hamilton Avenue, Suite 310, Palo Alto, California 94301.

 

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DESCRIPTION OF CAPITAL STOCK

The following description summarizes the most important terms of our capital stock, as they will be in effect following this offering. Because it is only a summary, it does not contain all the information that may be important to you. We expect to adopt a restated certificate of incorporation and restated bylaws that will become effective immediately prior to the completion of this offering, and this description summarizes provisions that are expected to be included in these documents. For a complete description, you should refer to our restated certificate of incorporation 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.

Upon the completion of this offering, our authorized capital stock will consist of 500,000,000 shares of common stock, $0.00001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.00001 par value per share.

Pursuant to the provisions of our current certificate of incorporation, immediately prior to the completion of this offering, each outstanding share of our redeemable convertible preferred stock will automatically convert into common stock at a ratio of 1:1. Assuming the conversion of all outstanding shares of our redeemable convertible preferred stock into 52,434,505 shares of our common stock and the issuance of 8,823,529 shares of our common stock based upon an assumed initial public offering price of $17.00 per share, which is the midpoint of the estimated price range set forth on the cover of this prospectus, as of September 30, 2019, there were:

 

   

8,296,358 shares of our common stock outstanding, held by 220 stockholders of record;

 

   

11,246,769 shares of our common stock issuable upon exercise of outstanding stock options;

 

   

62,500 shares of our common stock issuable upon the exercise of outstanding warrants to purchase common stock outstanding as of September 30, 2019, with a weighted-average exercise price of $6.40 per share;

 

   

51,370 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $1.46 per share; and

 

   

12,500 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series D redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $2.50 per share.

Common Stock

Dividend Rights

Subject to preferences that may apply to any shares of redeemable convertible preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See the section titled “Dividend Policy.”

Voting Rights

Holders of our common stock are entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the

 

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shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation establishes a classified board of directors, to 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.

No Preemptive or Similar Rights

Our common stock is not entitled to preemptive rights, and is not subject to redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

Upon our liquidation, dissolution, or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating redeemable convertible 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 redeemable convertible preferred stock.

Preferred Stock

As of September 30, 2019, there were 52,434,505 shares of redeemable convertible preferred stock outstanding. Immediately upon the completion of this offering, all outstanding shares of our redeemable convertible preferred stock as of September 30, 2019 will convert into 52,434,505 shares of our common stock, including the conversion of all of our outstanding shares of Series A, Series B, Series C, Series D, Series E, Series E-1, Series F, Series F-1, and Series G convertible preferred stock into 47,131,161 shares of our common stock and the conversion of all of our outstanding shares of Series H redeemable convertible preferred stock into 5,303,344 shares of our common stock, based upon an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. The number of shares of our common stock to be issued upon the conversion of all outstanding shares of our Series H redeemable convertible preferred stock depends, in part, on the initial public offering price of our common stock. We expect the initial public offering price of our common stock to be between $16.00 and $18.00 per share, as set forth on the cover page of this prospectus. However, the actual initial public offering price may be lower, which would increase the number of shares of our common stock to be issued upon the conversion of our Series H redeemable convertible preferred stock, as described in more detail below. We will not know the total number of shares of common stock issuable upon conversion of our Series H redeemable convertible preferred stock until the determination of the actual selling price per share following the effectiveness of the registration statement of which this prospectus forms a part. The ratio at which each share of our Series H redeemable convertible preferred stock automatically converts into shares of our common stock in connection with this offering is its original issue price divided by a conversion price determined by a formula as described below. If the initial public offering price per share, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, is less than $16.6154, the Series H conversion price will be reduced to the price obtained by multiplying (i) the current conversion price of $16.6154 by (ii) the quotient obtained by dividing (a) the number of shares of our common stock deemed outstanding immediately prior to the closing of this offering plus the number of shares of our common stock that the aggregate offering price for the shares to be issued in this offering would purchase at $16.6154, by (b) the number of shares of our common stock deemed outstanding immediately prior to this offering plus the total number of shares of our common stock issued in this offering. Based on an assumed initial offering public price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, our Series H redeemable convertible preferred stock would convert to common stock at a ratio of 1:1. At an assumed initial

 

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public offering price of $16.00 per share, which is the low end of the price range set forth on the cover page of this prospectus, our Series H redeemable convertible preferred stock would convert to common stock at a ratio of 1:1.0384625, and an additional 203,979 shares of our common stock would be issued to the holders of our Series H redeemable convertible preferred stock.

Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations, or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in our control and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.

Stock Options

As of September 30, 2019, we had outstanding stock options to purchase an aggregate of 11,246,769 shares of our common stock, with a weighted-average exercise price of $6.98 per share. Subsequent to September 30, 2019, we granted stock options to purchase 961,750 shares of our common stock under the 2016 Plan, with a weighted-average exercise price of $16.27 per share.

Warrants

As of September 30, 2019, we had outstanding warrants to purchase an aggregate of 62,500 shares of our common stock, with a weighted-average exercise price of $6.40 per share. We also had warrants to purchase 51,370 shares of Series B redeemable convertible preferred stock outstanding, with an exercise price of $1.46 per share, and warrants to purchase 12,500 shares of Series D redeemable convertible preferred stock outstanding, with an exercise price of $2.50 per share.

In addition, we are party to a warrant issuance agreement pursuant to which we may be required, based upon the achievement of certain sales volume thresholds with a customer, to issue up to 5,632,463 shares of common stock upon the exercise of warrants with an exercise price of $4.50 per share that may be issued in the future. As of September 30, 2019, no such warrants were issuable or outstanding.

Registration Rights

Following the completion of this offering, the holders of 52,434,505 shares of our common stock or their permitted transferees will be entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of an amended and restated investors’ rights agreement between us and the holders of these shares, which was entered into in connection with our redeemable convertible preferred stock financings, and includes demand registration rights, Form S-3 registration rights, and piggyback registration rights. In any registration made pursuant to such amended and restated investors’ rights agreement, all fees, costs, and expenses of underwritten registrations will be borne by us and all selling expenses, including estimated underwriting discounts, selling commissions, and stock transfer taxes, will be borne by the holders of the shares being registered.

 

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The registration rights terminate five years following the completion of this offering or, with respect to any particular stockholder, at the time that stockholder can sell all of its shares during any 90-day period pursuant to Rule 144 of the Securities Act.

Demand Registration Rights

The holders of an aggregate of 52,434,505 shares of our common stock, or their permitted transferees, are entitled to demand registration rights at any time after the earlier of (a) five years after the date of the amended and restated investors rights agreement or (b) 180 days after the effective date of the registration statement for this offering. Under the terms of the amended and restated investors’ rights agreement, we will be required, upon the written request of holders of at least a majority of the shares that are entitled to registration rights under the amended and restated investors’ rights agreement, to file a registration statement on Form S-1 to register, as soon as practicable and in any event within 20 days of the date of the request, all or a portion of these shares for public resale, if the aggregate price to the public of the shares offered is at least $7.5 million, net of selling expenses. We are required to effect only two registrations pursuant to this provision of the amended and restated investors’ rights agreement. We may postpone the filing of a registration statement for up to 120 days in a 12-month period if our board of directors determines that the filing would be materially detrimental to us. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors’ rights agreement, including at any time earlier than 180 days after the effective date of this offering.

Form S-3 Registration Rights

The holders of an aggregate of 52,434,505 shares of our common stock or their permitted transferees are also entitled to Form S-3 registration rights. One or more holders of any outstanding shares having registration rights can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $1.0 million, net of selling expenses. We will be required, as soon as practicable and in any event within 45 days of the request, to file a registration statement on Form S-3 to register these shares for public resale. The holders may only require us to effect at most two registration statements on Form S-3 in any 12-month period. We may postpone the filing of a registration statement for up to 120 days in a 12-month period if our board of directors determines that the filing would be materially detrimental to us. We are not required to effect a demand registration under certain additional circumstances specified in the amended and restated investors’ rights agreement.

Piggyback Registration Rights

If we register any of our common stock for public sale under the Securities Act and solely for cash, holders of an aggregate of 52,434,505 shares of our common stock or their permitted transferees having registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to employee benefit plans, a registration relating to an SEC Rule 145 transaction, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the common stock, or a registration in which the only common stock being registered is common stock issuable upon conversion of debt securities that are also being registered. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine that marketing factors require limitation, in which case the number of shares to be registered will be apportioned among the holders in such other proportion as shall mutually be agreed to by all such selling holders. However, the number of shares to be registered by these holders cannot be reduced (i) unless all other securities (other than securities to be sold by our company) are first excluded from the offering or (ii) below 30% of the total shares covered by the registration statement, other than in the initial public offering.

 

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Anti-Takeover Provisions

The provisions of the DGCL, our restated certificate of incorporation, and our restated bylaws following this offering could have the effect of delaying, deferring, or discouraging another person from acquiring control of our company. These provisions, which are summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and encourage persons seeking to acquire control of our company to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

Section 203 of the DGCL

We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

   

before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

   

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 for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans in some instances, but not the outstanding voting stock owned by the interested stockholder; or

 

   

at or after the time the stockholder became interested, the business combination was approved by our board and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

 

   

any merger or consolidation involving the corporation and the interested stockholder;

 

   

any sale, transfer, lease, pledge, or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

 

   

subject to exceptions, any transaction that results in the issuance of transfer by the corporation of any stock of the corporation to the interested stockholder;

 

   

subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and

 

   

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

 

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Restated Certificate of Incorporation and Restated Bylaw Provisions

Our restated certificate of incorporation and our restated bylaws will include a number of provisions that may have the effect of deterring hostile takeovers, or delaying or preventing changes in control of our management team or changes in our board of directors or our governance or policy, including the following:

 

   

Board Vacancies.    Our restated bylaws and certificate of incorporation will authorize generally only our board of directors to fill vacant directorships resulting from any cause or created by the expansion of our board of directors. In addition, the number of directors constituting our board of directors may be set only by resolution adopted by a majority vote of our entire board of directors. These provisions prevent a stockholder from increasing the size of our board of directors and gaining control of our board of directors by filling the resulting vacancies with its own nominees.

 

   

Classified Board.    Our restated certificate of incorporation and restated bylaws will provide that our board of directors is classified into three classes of directors. The existence of a classified board of directors could delay a successful tender offeror from obtaining majority control of our board of directors, and the prospect of that delay might deter a potential offeror. See the section titled “Management—Executive Officers and Directors—Classified Board of Directors” for additional information.

 

   

Directors Removed Only for Cause.    Our restated certificate of incorporation will provide that stockholders may remove directors only for cause.

 

   

Supermajority Requirements for Amendments of Our Restated Certificate of Incorporation and Restated Bylaws.    Our restated certificate of incorporation will further provide that the affirmative vote of holders of at least 66 2/3% of our outstanding common stock will be required to amend certain provisions of our restated certificate of incorporation, including provisions relating to the classified board, the size of the board of directors, removal of directors, special meetings, actions by written consent, and designation of our preferred stock. The affirmative vote of holders of at least 66 2/3% of our outstanding common stock will be required to amend or repeal our restated bylaws, although our restated bylaws may be amended by a simple majority vote of our board of directors.

 

   

Stockholder Action; Special Meetings of Stockholders.    Our restated certificate of incorporation will provide that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders. As a result, holders of our capital stock would not be able to amend our restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our restated bylaws. Our restated certificate of incorporation and our restated bylaws will provide that special meetings of our stockholders may be called only by a majority of our board of directors, the chairman 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 to take any action, including the removal of directors.

 

   

Advance Notice Requirements for Stockholder Proposals and Director Nominations.    Our 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 restated bylaws also will specify certain requirements regarding the form and content of a stockholder’s notice. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders. We expect that these provisions might also discourage or deter a potential acquirer from

 

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conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

   

No Cumulative Voting.    The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our restated certificate of incorporation and restated bylaws will not provide for cumulative voting.

 

   

Issuance of Undesignated Preferred Stock.    We anticipate that after the filing of our restated certificate of incorporation, our board will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock enables our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or otherwise.

 

   

Choice of Forum.    Our restated certificate of incorporation will provide that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision will not apply to claims that are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not preclude the filing of claims brought to enforce any liability or duty created by the Exchange Act or Securities Act or the rules and regulations thereunder in federal court.

Transfer Agent and Registrar

Upon the completion of this offering, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A. The transfer agent’s address is 250 Royall Street, Canton, Massachusetts 02021, and its telephone number is (800) 962-4284.

Exchange Listing

We have been approved to list our common stock on the New York Stock Exchange under the symbol “BILL.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time.

Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding stock options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

Upon the completion of this offering, based on the 8,296,358 shares of our common stock outstanding as of September 30, 2019, and the automatic conversion of all shares of our redeemable convertible preferred stock into an aggregate of 52,434,505 shares of common stock we will have a total of 69,554,392 shares of our common stock outstanding. Of these outstanding shares, all of the 8,823,529 shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, only would be able to be sold in compliance with the Rule 144 limitations described below.

The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, each of our directors, executive officers, and the holders of substantially all of our outstanding equity securities have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. Subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:

 

   

beginning on the date of this prospectus, all of the shares sold in this offering will be immediately available for sale in the public market; and

 

   

beginning 181 days after the date of this prospectus, 60,730,863 additional shares will become eligible for sale in the public market, of which 43,499,025 shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below.

Lock-Up/Market Standoff Agreements

All of our directors and executive officers and holders of substantially all of our outstanding equity securities are subject to lock-up agreements or market standoff provisions that prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring, or otherwise disposing of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) any shares of our common stock or securities convertible into or exercisable or exchangeable for any shares of our common stock, or establishing or increasing a put equivalent position, or liquidating or decreasing a call equivalent position with respect to such securities, or publicly disclosing the intention to effect any such transaction, for a period of 180 days following the date of this prospectus without the prior written consent of Goldman Sachs & Co. LLC. These agreements are subject to certain customary exceptions. However, if (i) we have publicly released our earnings results for the quarterly period during which this offering occurred, and (ii) the 180-day lock-up period is scheduled to end during a broadly applicable period during which trading in our securities would not be permitted under our insider trading policy, or a blackout period, or within the five trading days prior to a blackout period, then the lock-up period applicable to our directors, officers, and

 

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securityholders will instead end ten trading days prior to the commencement of the blackout period; provided that in no event will the lock-up period end prior to 120 days after the date of this prospectus. In the event that ten trading days prior to the commencement of the blackout period is earlier than 120 days after the date of this prospectus, then the lock-up period shall end 120 days after the date of this prospectus; but only if such 120th day is at least five trading days before the start of such blackout period (and if not, then no such early release will occur and the lock-up period will remain 180 days after the date of this prospectus). We will publicly announce the date of any early release described in this paragraph at least two trading days prior to such early release. The lock-up agreements applicable to our directors, officers, and securityholders, each referred to as a lock-up party, include certain exceptions to the restrictions on transfer, including with respect to certain of our significant stockholders, the pledge of shares of our capital stock in a bona fide transaction to third parties as collateral to secure obligations pursuant to lending or other similar arrangements relating to a financing arrangement for the benefit of the lock-up party and/or its affiliates, provided that the lender agrees to be bound by the lock-up restrictions; and, only after the 120th day after the date of this prospectus, the sale of any such pledged shares to or by such third parties in accordance with the terms of the agreement governing any such lending arrangement. In addition, Goldman Sachs & Co. LLC may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements prior to the expiration of the lock-up period. See the section titled “Underwriting” for additional information.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation, or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

 

   

1% of the number of shares of our common stock then outstanding, which will equal approximately 695,544 shares immediately after this offering; or

 

   

the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but

 

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without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

Stock Options

As soon as practicable after the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of common stock reserved for issuance under our equity incentive plans. In addition, we intend to file a registration statement on Form S-8 or such other form as may be required under the Securities Act for the resale of shares of our common stock issued upon the exercise of options that were not granted under Rule 701. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice, and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.

Registration Rights

We have granted demand, piggyback, and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see the section titled “Description of Capital Stock—Registration Rights.”

 

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MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following summary describes certain U.S. federal income tax consequences of the ownership and disposition of our common stock acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes, does not discuss the potential application of the alternative minimum tax or Medicare contribution tax on net investment income, and does not deal with state or local taxes, U.S. federal gift and estate taxes, except to the limited extent provided below, or any non-U.S. tax consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances.

Special rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code, such as:

 

   

insurance companies, banks, and other financial institutions;

 

   

tax-exempt organizations (including private foundations) and tax-qualified retirement plans;

 

   

foreign governments and international organizations;

 

   

broker-dealers and traders in securities;

 

   

U.S. expatriates and certain former citizens or long-term residents of the United States;

 

   

persons that own, or are deemed to own, more than 5% of our capital stock;

 

   

persons required for U.S. federal income tax purposes to conform the timing of income accruals to their financial statements under Section 451(b) of the Code;

 

   

“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

   

persons that hold our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” or integrated investment or other risk reduction strategy;

 

   

persons who do not hold our common stock as a capital asset (generally, an asset held for investment purposes) within the meaning of Section 1221 of the Code; and

 

   

partnerships and other pass-through entities, and investors in such pass-through entities (regardless of their places of organization or formation).

Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local, and other tax consequences that may be relevant to them.

If a partnership, including any entity treated as a partnership for U.S. federal income tax purposes, is a holder of shares of our common stock, the tax treatment of a partner or member in the partnership or entity will generally depend upon the status of the partner, the activities of the partnership, and certain determinations made at the partner level. A holder of shares of our common stock that is a partnership, and partners in such partnership, are urged to consult their own tax advisors regarding the tax consequences of the acquisition, ownership, and disposition of shares of our common stock.

Furthermore, the discussion below is based upon the provisions of the Code, and Treasury Regulations, rulings, and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked, or modified, possibly retroactively, and are subject to differing interpretations which could result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the Internal Revenue Service (IRS) with respect to the statements

 

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made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions or will not take a contrary position regarding the tax consequences described herein, or that any such contrary position would not be sustained by a court.

PERSONS CONSIDERING THE PURCHASE OF OUR COMMON STOCK PURSUANT TO THIS OFFERING SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF OUR COMMON STOCK IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION, INCLUDING ANY STATE, LOCAL, OR NON-U.S. TAX CONSEQUENCES OR ANY U.S. FEDERAL NON-INCOME TAX CONSEQUENCES, AND THE POSSIBLE APPLICATION OF TAX TREATIES. IN ADDITION, SIGNIFICANT CHANGES IN U.S. FEDERAL INCOME TAX LAWS WERE RECENTLY ENACTED AS PART OF THE TAX CUTS AND JOBS ACT OF 2017. YOU SHOULD CONSULT WITH YOUR TAX ADVISOR WITH RESPECT TO SUCH CHANGES IN U.S. TAX LAW AS WELL AS POTENTIAL CONFORMING CHANGES IN STATE TAX LAWS.

For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of our common stock that is not a U.S. Holder or a partnership for U.S. federal income tax purposes. A “U.S. Holder” means a beneficial owner of our common stock that is for U.S. federal income tax purposes (a) an individual who is a citizen or resident of the United States, (b) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes), created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

If you are an individual who is not a citizen or resident of the United States, you may, in some cases, be deemed to be a resident alien of the United States by virtue of being present in the United States for at least 31 days in the current calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. Generally, for this purpose, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year, are counted.

Individuals who are uncertain of their status as a resident of the United States for U.S. federal income tax purposes are urged to consult their own tax advisors regarding the U.S. federal income tax consequences of the ownership or disposition of our common stock.

Distributions

As described in the section titled “Dividend Policy,” we do not expect to make any distributions on our common stock in the foreseeable future. If we do make distributions on our common stock, however, such distributions made to a Non-U.S. Holder of our common stock will constitute dividends for U.S. tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Distributions in excess of our current or accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a Non-U.S. Holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or exchange of our common stock as described in the section titled “—Gain on Disposition of Our Common Stock.”

 

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Subject to the discussions below regarding backup withholding and FATCA (as defined below), any distribution on our common stock that is treated as a dividend paid to a Non-U.S. Holder that is not effectively connected with the holder’s conduct of a trade or business in the United States will generally be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide the applicable withholding agent with a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate form, certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. Such form must be provided prior to the payment of dividends and must be updated periodically. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent may then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.

We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the holder maintains in the United States) if a properly executed IRS Form W-8ECI, stating that the dividends are so connected, is furnished to us (or, if our stock is held through a financial institution or other agent, to the applicable withholding agent). In general, such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the same graduated rates applicable to U.S. persons. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments.

See also the sections below titled “—Backup Withholding and Information Reporting” and “—Foreign Accounts” for additional withholding rules that may apply to dividends paid to certain foreign financial institutions or non-financial foreign entities and to any recipient that has not properly established its exemption from U.S. backup withholding, respectively.

Gain on Disposition of Our Common Stock

Subject to the discussions below under the sections titled “—Backup Withholding and Information Reporting” and “—Foreign Accounts,” a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax with respect to gain realized on a sale or other disposition of our common stock unless (a) the gain is effectively connected with a trade or business of the holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that the holder maintains in the United States), (b) the Non-U.S. Holder is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions are met, or (c) we are or have been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code at any time within the shorter of the five-year period preceding such sale or other disposition or the holder’s holding period in the common stock.

If you are a Non-U.S. Holder described in (a) above, you will be required to pay tax on the net gain derived from the sale at the same graduated U.S. federal income tax rates applicable to U.S. persons. Corporate Non-U.S. Holders described in (a) above may also be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax

 

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treaty. If you are an individual Non-U.S. Holder described in (b) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by certain U.S. source capital losses (even though you are not considered a resident of the United States), provided you have timely filed U.S. federal income tax returns with respect to such losses. With respect to (c) above, in general, we would be a United States real property holding corporation if the fair market value of our U.S. real property interests as defined in the Code and the Treasury Regulations comprised at least half the fair market value of our worldwide real property interests and other assets used or held for use in a trade or business. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation. However, there can be no assurance that we will not become a U.S. real property holding corporation in the future. Even if we are treated as a U.S. real property holding corporation, gain realized by a Non-U.S. Holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly or constructively, no more than five percent of our common stock at all times within the shorter of (i) the five-year period preceding the disposition or (ii) the holder’s holding period and (2) our common stock is regularly traded on an established securities market. There can be no assurance that our common stock will qualify as regularly traded on an established securities market.

U.S. Federal Estate Tax

The estates of nonresident alien individuals generally are subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and, therefore, will be included in the taxable estate of a nonresident alien decedent, unless an applicable estate tax treaty between the United States and the decedent’s country of residence provides otherwise. The terms “resident” and “nonresident” are defined differently for U.S. federal estate tax purposes than for U.S. federal income tax purposes. Investors are urged to consult their own tax advisors regarding the U.S. federal estate tax consequences of the ownership or disposition of our common stock.

Backup Withholding and Information Reporting

Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock, including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.

Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or other appropriate IRS Form W-8), as applicable, or otherwise establishes an exemption, provided that the applicable withholding agent does not have actual knowledge or reason to know the holder is a U.S. person.

U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of any broker, U.S. or non-U.S., unless the Non-U.S. Holder provides a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or other appropriate IRS Form W-8), as applicable, or otherwise meets documentary evidence requirements for establishing non-U.S. person status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual

 

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knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.

Backup withholding is not an additional tax. If backup withholding is applied to you, you should consult with your own tax advisor to determine whether you have overpaid your U.S. federal income tax, and whether you are able to obtain a tax refund or credit of the overpaid amount.

Foreign Accounts

Sections 1471 through 1474 of the Code, and the regulations thereunder (commonly referred to as FATCA) imposes withholding at a 30% rate on certain types of “withholdable payments” (including dividends paid on, and the gross proceeds from the sale or other disposition of, stock in a U.S. corporation) made to a “foreign financial institution” or to a “non-financial foreign entity” (all as defined in the Code) (whether such foreign financial institution or non-financial foreign entity is the beneficial owner or an intermediary), unless (i) the foreign financial institution undertakes certain diligence and reporting obligations, (ii) the nonfinancial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (i) above, it generally must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities (as defined in applicable U.S. Treasury Regulations), annually report certain information about such accounts and withhold 30% on payments to noncompliant foreign financial institutions and certain other account holders. Many foreign governments have entered into intergovernmental agreements with the United States to implement FATCA in a different manner. If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under the sections titled “—Distributions,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax.

FATCA withholding currently applies to payments of dividends on our common stock. Subject to the recently released proposed Treasury Regulations described in this offering memorandum below, FATCA withholding generally will also apply to payments of gross proceeds from the sale or other disposition of our common stock. The U.S. Treasury Department recently released proposed regulations, however, that, if finalized in their present form, would eliminate the federal withholding tax of 30% applicable to gross proceeds from sales or other dispositions of our common stock. In its preamble to such proposed regulations, the U.S. Treasury Department stated that taxpayers may generally rely on the proposed regulations until final regulations are issued.

Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S., OR U.S. FEDERAL NON-INCOME TAX LAWS SUCH AS ESTATE AND GIFT TAX.

 

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UNDERWRITING

We will enter into an underwriting agreement with the underwriters named below with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, BofA Securities, Inc., and Jefferies LLC are acting as the representatives of the underwriters.

 

Underwriters

   Number of Shares  

Goldman Sachs & Co. LLC

                       

BofA Securities, Inc

  

Jefferies LLC

  

KeyBanc Capital Markets Inc.

  

Canaccord Genuity LLC

  

Needham & Company, LLC

  

William Blair & Company, L.L.C.

  
  

 

 

 

Total

     8,823,529  
  

 

 

 

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

The underwriters will have an option to purchase up to an additional 1,323,529 shares from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. The underwriters may exercise that option for a period of 30 days from the date of this prospectus. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

Certain entities affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to 1,500,000 shares of our common stock in this offering at the initial public offering price per share. Because these indications of interest are not binding agreements or commitments to purchase, such entities may determine to purchase more, less, or no shares in this offering, or the underwriters may determine to sell more, less, or no shares to such entities. The underwriters will receive the same discount from any shares of common stock sold to such entities as they will from any other shares of common stock sold to the public in this offering.

The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase 1,323,529 additional shares.

 

     Paid by Us  
     No Exercise      Full Exercise  

Per Share

   $                    $                

Total

   $        $    

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $                per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

 

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Our officers, directors, and holders of substantially all of our common stock and securities convertible into or exchangeable for our capital stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman Sachs & Co. LLC; provided that if (i) we have publicly released our earnings results for the quarterly period during which this offering occurred, and (ii) the 180-day lock-up period is scheduled to end during a broadly applicable period during which trading in our securities would not be permitted under our insider trading policy, or a blackout period, or within the five trading days prior to a blackout period, then the lock-up period applicable to our directors, officers, and securityholders will instead end ten trading days prior to the commencement of the blackout period; provided that in no event will the lock-up period end prior to 120 days after the date of this prospectus. In the event that ten trading days prior to the commencement of the blackout period is earlier than 120 days after the date of this prospectus, then the lock-up period shall end 120 days after the date of this prospectus; but only if such 120th day is at least five trading days before the start of such blackout period (and if not, then no such early release will occur and the lock-up period will remain 180 days after the date of this prospectus). We will publicly announce the date of an early release described in this paragraph at least two trading days prior to such early release. See “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.

Prior to this offering, there has been no public market for the shares. The initial public offering price has been negotiated between us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management, and the consideration of the above factors in relation to the market valuation of companies in related businesses.

We have been approved to list our common stock on the New York Stock Exchange (NYSE) under the symbol “BILL.”

In connection with this offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions, and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A “covered short position” is a short position that is not greater than the number of additional shares for which the underwriters’ option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. “Naked” short sales are any short sales that create a short position greater than the number of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the closing of this offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

 

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Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on the NYSE, in the over-the-counter market, or otherwise.

We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $5.2 million. We have also agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $30,000.

We will agree to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. In addition, we have agreed to reimburse the underwriters for certain expenses in connection with this offering.

Other Relationships

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage, and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships to us, for which they received or will receive customary fees and expenses. In addition, we have entered into agreements with affiliates of BofA Securities, Inc. and KeyBank National Association to offer certain of our products to their clients.

Affiliates of Goldman Sachs & Co. LLC, one of the underwriters, are holders of an aggregate of 35,000 shares, 8,625 shares, 4,847 shares and 255,937 shares of our Series D redeemable convertible preferred stock, Series E redeemable convertible preferred stock, Series F redeemable convertible preferred stock and Series G redeemable convertible preferred stock, respectively, all of such shares will automatically convert into an aggregate of 304,409 shares of our common stock in connection with this offering.

Additionally, affiliates of BofA Securities, Inc., one of the underwriters, are holders of an aggregate of 995,025 shares and 136,328 shares of our Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock, respectively, all of such shares will automatically convert into an aggregate of 1,131,353 shares of our common stock in connection with this offering. In connection with the purchase of our Series E redeemable convertible preferred stock, affiliates of BofA Securities, Inc. received the right to appoint an observer to the meetings of our board of directors and related committees in a non-voting capacity that terminates upon the closing of this offering.

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate

 

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independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

European Economic Area

In relation to each Member State of the European Economic Area (each, a “Member State”), no offer of shares may be made to the public in that Member State other than:

(a) to any legal entity which is a qualified investor as defined in the Prospectus Regulation;

(b) to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or

(c) in any other circumstances falling within Article 1(4) of the Prospectus Regulation, provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation and each person who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and us that it is a “qualified investor” as defined in the Prospectus Regulation.

In the case of any shares being offered to a financial intermediary as that term is used in Article 5 of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a nondiscretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Member State to qualified investors as so defined or in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Member State means the communication in any form and by means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).

This European Economic Area selling restriction is in addition to any other selling restrictions set out below.

United Kingdom

In the United Kingdom, this prospectus is only addressed to and directed at qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

Canada

The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106

 

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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 securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this offering memorandum (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 purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory of these rights or consult with a legal advisor.

Pursuant to section 3A.3 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.

Hong Kong

The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (Companies (Winding Up and Miscellaneous Provisions) Ordinance) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (Securities and Futures Ordinance), or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the SFA) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, 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 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

 

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by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (Regulation 32).

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest 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), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA or (6) as specified in Regulation 32.

Japan

The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (FIEA). The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.

Switzerland

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to the offering, our company or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.

 

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Dubai International Financial Centre

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

 

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LEGAL MATTERS

The validity of the shares of our common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, Mountain View, California. Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, is acting as counsel to the underwriters. Fenwick & West LLP beneficially owns an aggregate of 91,349 shares of our capital stock.

EXPERTS

The consolidated financial statements of Bill.com Holdings, Inc. as of June 30, 2018 and 2019, and for the years then ended, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report and appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and in each instance we refer you to the copy of such contract or other document filed as an exhibit to the registration statement. We currently do not file periodic reports with the SEC. Upon completion of this offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov. A copy of the registration statement and the exhibits filed therewith may be accessed at the SEC website.

We also maintain a website at www.bill.com. Upon completion of this offering, you may access these materials at our website free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Bill.com Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Bill.com Holdings, Inc. (the Company) as of June 30, 2018 and 2019, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit, and cash flows for each of the two years in the period ended June 30, 2019, and 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 at June 30, 2018 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2018.

San Francisco, California

September 5, 2019, except for the 6th paragraph of Note 1, as to which the date is November 27, 2019

 

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BILL.COM HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

    June 30,     September 30,
2019
    Pro forma
September 30,
2019
 
    2018     2019  
                (unaudited)  

ASSETS

       

Cash and cash equivalents

  $ 22,401     $ 90,306     $ 86,249                         

Short-term investments

    69,867       71,969       71,393    

Accounts receivable, net

    2,300       4,398       3,691    

Unbilled revenue

    3,047       4,795       5,416    

Prepaid expenses and other current assets

    6,081       12,326       13,911    

Funds held for customers

    915,013       1,329,306       1,466,492    
 

 

 

   

 

 

   

 

 

   

Total current assets

    1,018,709       1,513,100       1,647,152    

Property and equipment, net

    5,948       6,557       7,607    

Other assets

    4,626       6,641       7,398    
 

 

 

   

 

 

   

 

 

   

Total assets

  $ 1,029,283     $ 1,526,298     $ 1,662,157    
 

 

 

   

 

 

   

 

 

   

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY

       

Accounts payable

  $ 1,532     $ 5,063     $ 5,686    

Accrued compensation and benefits

    3,425       4,333       4,409    

Other accrued and current liabilities

    3,001       6,556       7,731    

Redeemable convertible preferred stock warrant liabilities

    663       688       853     $ -    

Deferred revenue, current portion

    3,277       3,469       3,437    

Current portion of bank borrowings

    3,667       -         -      

Customer fund deposits

    915,013       1,329,306       1,466,492    
 

 

 

   

 

 

   

 

 

   

Total current liabilities

    930,578       1,349,415       1,488,608    

Deferred revenue, net of current portion

    1,931       1,786       1,811    

Long-term portion of bank borrowings

    5,833       -         -      

Other long-term liabilities

    1,698       1,447       1,412    
 

 

 

   

 

 

   

 

 

   

Total liabilities

    940,040       1,352,648       1,491,831    
 

 

 

   

 

 

   

 

 

   

Commitments and contingencies (Note 11)

       

Redeemable convertible preferred stock: 96,601, 106,090 and 106,090 shares authorized; 47,131, 52,435 and 52,435 shares issued and outstanding at June 30, 2018, June 30, 2019 and September 30, 2019 (unaudited), respectively; no shares authorized, issued and outstanding at September 30, 2019 pro forma (unaudited); liquidation preference of $192,396, $280,513 and $280,513 at June 30, 2018, June 30, 2019 and September 30, 2019 (unaudited), respectively

    191,147       276,307       276,307       -    

 

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    June 30,     September 30,
2019
    Pro forma
September 30,
2019
 
    2018     2019  
                (unaudited)  

Stockholders’ (deficit) equity:

       

Common stock; $0.00001 par value per share; 160,000, 169,300 and 169,300 shares authorized; 7,345, 8,154 and 8,296 shares issued and outstanding at June 30, 2018, June 30, 2019 and September 30, 2019 (unaudited), respectively; 60,731 shares issued and outstanding at September 30, 2019 pro forma (unaudited)

    1       1       1       2  

Non-voting common stock; $0.00001 par value per share; 14,000 shares authorized; no shares issued and outstanding at June 30, 2018, June 30, 2019 and September 30, 2019 (unaudited); no shares authorized, issued and outstanding at September 30, 2019 pro forma (unaudited)

    -         -         -         -    

Additional paid-in capital

    8,614       14,672       17,242       294,401  

Accumulated other comprehensive (loss) income

    (177     326       128       128  

Accumulated deficit

    (110,342     (117,656     (123,352     (123,352
 

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

    (101,904     (102,657     (105,981   $ 171,179  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

  $ 1,029,283     $ 1,526,298     $ 1,662,157    
 

 

 

   

 

 

   

 

 

   

 

See accompanying notes to consolidated financial statements.

 

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BILL.COM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

     Year ended June 30,     Three months ended
September 30,
 
     2018     2019     2018     2019  
                 (unaudited)  

Revenue

        

Subscription and transaction fees

   $ 56,992     $ 85,951     $ 18,170     $ 28,548  

Interest on funds held for customers

     7,873       22,400       4,254       6,632  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     64,865       108,351       22,424       35,180  

Cost of revenue

     19,372       29,918       6,341       9,147  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     45,493       78,433       16,083       26,033  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Research and development

     17,986       28,924       5,424       11,515  

Sales and marketing

     19,290       30,114       5,944       10,267  

General and administrative

     16,034       29,198       5,937       10,535  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     53,310       88,236       17,305       32,317  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (7,817     (9,803     (1,222     (6,284

Other income, net

     632       2,333       317       639  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for (benefit from) income taxes

     (7,185     (7,470     (905     (5,645

Provision for (benefit from) income taxes

     10       (156     (21     51  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,195   $ (7,314   $ (884   $ (5,696
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

        

Basic and diluted

   $ (1.01   $ (0.94   $ (0.12   $ (0.69
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares used to compute net loss per share attributable to common stockholders:

        

Basic and diluted

     7,155       7,797       7,423       8,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Basic and diluted

     $ (0.13     $ (0.09
    

 

 

     

 

 

 

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

        

Basic and diluted

       57,599         60,665  
    

 

 

     

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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BILL.COM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

     Year ended June 30,     Three months ended
September 30,
 
     2018     2019     2018     2019  
                 (unaudited)  

Net loss

   $ (7,195   $ (7,314   $ (884   $ (5,696

Other comprehensive (loss) income:

        

Net unrealized (loss) gain on investments in available-for-sale securities, net of tax of $0, $176, $0 and $0 during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited), respectively

     (177     503       105       (198
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (7,372   $ (6,811   $ (779   $ (5,894
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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BILL.COM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(In thousands)

 

    Redeemable
convertible

preferred stock
     Common stock     Additional
paid-in

capital
    Accumulated
other
comprehensive

(loss) income
    Accumulated
deficit
    Total
stockholders’

deficit
 
    Shares     Amount      Shares     Amount  

Balance at June 30, 2017

    41,408     $ 135,342        6,969     $ 1     $ 6,314     $ -       $ (103,147   $ (96,832

Issuance of Series G redeemable convertible preferred stock, net of issuance costs

    5,723       55,805        -         -         -         -         -         -    

Exercise of stock options and vesting of early-exercised stock options

    -         -          376       -         755       -         -         755  

Employee stock-based compensation

    -         -          -         -         1,545       -         -         1,545  

Other comprehensive loss

    -         -          -         -         -         (177     -         (177

Net loss

    -         -          -         -         -         -         (7,195     (7,195
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2018

    47,131       191,147        7,345       1       8,614       (177     (110,342     (101,904

Issuance of Series H redeemable convertible preferred stock, net of issuance costs

    5,304       85,160        -         -         -         -         -         -    

Exercise of stock options and vesting of early-exercised stock options

    -         -          809       -         1,702       -         -         1,702  

Employee stock-based compensation

    -         -          -         -         4,082       -         -         4,082  

Issuance of stock warrants

    -         -          -         -         274       -         -         274  

Other comprehensive income, net of tax

    -         -          -         -         -         503       -         503  

Net loss

    -         -          -         -         -         -         (7,314     (7,314
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2019

    52,435       276,307        8,154       1       14,672       326       (117,656     (102,657

Exercise of stock options (unaudited)

    -         -          142       -         294       -         -         294  

Employee stock-based compensation (unaudited)

    -         -          -         -         2,276       -         -         2,276  

Other comprehensive loss, net of tax (unaudited)

    -         -          -         -         -         (198     -         (198

Net loss (unaudited)

    -         -          -         -         -         -         (5,696     (5,696
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2019 (unaudited)

    52,435     $ 276,307        8,296     $ 1     $ 17,242     $ 128     $ (123,352   $ (105,981
 

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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BILL.COM HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    Year ended June 30,     Three months ended
September 30,
 
    2018     2019     2018     2019  
                (unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

       

Net loss

  $ (7,195   $ (7,314   $ (884   $ (5,696

Adjustments to reconcile net loss to net cash used in operating activities:

       

Depreciation and amortization

    2,314       3,154       765       985  

Stock-based compensation

    1,545       4,082       607       2,276  

Accretion of discount on investment in marketable debt securities

    -         (1,319     (165     (730

Revaluation of warrants liabilities and forfeiture of warrants

    182       25       (11     165  

Issuance of warrants

    -         274       52       -    

Deferred income taxes

    -         (176     (37     -    

Changes in assets and liabilities:

       

Accounts receivable

    (279     (2,098     (1,096     707  

Unbilled revenue

    (503     (1,748     (518     (621

Prepaid expenses and other current assets

    (3,477     (5,690     (1,121     (1,142

Other assets

    (2,828     (995     (850     (50

Accounts payable

    (563     3,171       1,048       508  

Accrued and other current liabilities

    1,642       4,336       153       1,132  

Other long-term liabilities

    35       302       (85     93  

Deferred revenue

    771       47       (113     (7
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

    (8,356     (3,949     (2,255     (2,380
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

       

Purchases of corporate and customer fund short-term investments

    (726,788     (830,622     (191,198     (189,204

Proceeds from maturities of corporate and customer fund short-term investments

    290,828       694,303       206,434       255,171  

Proceeds from sale of corporate and customer fund short-term investments

    16,498       54,715       -         10,761  

Decrease (increase) in restricted cash and cash equivalents and other receivables included in funds held for customers

    85,876       (333,348     (118,000     (213,249

Purchases of property and equipment

    (1,313     (2,743     (834     (1,946

Capitalization of internal-use software costs

    (733     (1,556     (421     (215

Decrease (increase) in restricted cash

    211       (550     -         550  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    (335,421     (419,801     (104,019     (138,132
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

       

Increase in customer fund deposits liability

    263,671       414,293       98,723       137,186  

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

    55,805       85,160       -         -    

Proceeds from bank borrowings

    9,500       -         -         -    

Payments on bank borrowings

    (3,387     (9,500     -         -    

Proceeds from exercise of stock options

    693       1,702       458       294  

Payments of deferred financing costs

    -         -         -         (874

Payments of deferred debt issuance costs

    -         -         -         (151
 

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

    326,282       491,655       99,181       136,455  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

    (17,495     67,905       (7,093     (4,057

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

    39,896       22,401       22,401       90,306  
 

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

  $ 22,401     $ 90,306     $ 15,308     $ 86,249  
 

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

       

Cash paid for interest

  $ 436     $ 872     $ 121     $ 137  
 

 

 

   

 

 

   

 

 

   

 

 

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

       

Accrued purchases of property and equipment

  $ 1,908     $ -       $ 1,908     $ -    
 

 

 

   

 

 

   

 

 

   

 

 

 

Accrued deferred offering and debt issuance costs

  $ -       $ 470     $ -       $ 342  
 

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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BILL.COM HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Bill.com, Inc. (the Company), a Delaware company incorporated on April 7, 2006, is a provider of software-as-a-service, cloud-based payments products, which allow users to automate accounts payable and accounts receivable transactions and enable users to easily connect with their suppliers and/or customers to do business, manage cash flows and improve back office efficiency.

In November 2018, the Company consummated a reorganization by interposing a holding company between Bill.com, Inc. and its stockholders. To accomplish the reorganization, the Company formed BDC Payments Holdings, Inc. (BDC), which was incorporated in Delaware on August 2, 2018, and Bill.com, LLC (Merger Sub) as a wholly owned subsidiary of BDC. The Company merged Bill.com, Inc. and Merger Sub, with Bill.com, Inc. as the surviving entity, by issuing identical shares of stock of BDC to the stockholders of Bill.com, Inc. in exchange for their equity interest in Bill.com, Inc. After the merger, all of the stockholders of Bill.com, Inc. became 100% stockholders of BDC, and Bill.com, Inc. became a wholly owned subsidiary of BDC. Concurrent with the merger, Bill.com, Inc. (a C-corporation entity) was converted into a limited liability company and renamed into Bill.com, LLC, with BDC as the sole member.

The merger was considered a transaction between entities under common control. Accordingly, BDC recognized the assets and liabilities of Bill.com, Inc. at their carrying values and the accompanying consolidated financial statements present comparative information for prior periods on a consolidated basis, as if both BDC and Bill.com, LLC (formerly Bill.com, Inc.) were under common control for all periods presented. On June 27, 2019, BDC changed its name to Bill.com Holdings, Inc.

Bill.com Holdings, Inc. and Bill.com, LLC are collectively referred to as the “Company” in the accompanying consolidated financial statements after the reorganization.

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements include the accounts of the Company and were prepared in conformity with U.S. generally accepted accounting principles (GAAP). Intercompany accounts and transactions have been eliminated.

Stock SplitOn November 27, 2019, the Company filed an amendment to its amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s issued and outstanding redeemable convertible preferred stock, common stock and non-voting common stock on a 2-for-1 basis. The par value and authorized shares of the redeemable convertible preferred stock, common stock and non-voting common stock were not adjusted as a result of the reverse stock split. All references to the redeemable convertible preferred stock, common stock, non-voting common stock, options to purchase common stock, early exercised stock options, warrants to purchase redeemable convertible preferred stock, warrants to purchase common stock, per share amounts and related information contained in the consolidated financial statements have been retroactively adjusted to reflect the effect of the reverse stock split for all periods presented.

Unaudited Interim Financial Information—The accompanying interim consolidated balance sheet as of September 30, 2019, the consolidated statements of operations, comprehensive loss, and cash flows for the three months ended September 30, 2018 and 2019, the consolidated statement of redeemable convertible preferred stock and stockholders’ deficit for the three months ended September 30, 2019, and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared on the same basis as the annual consolidated financial

 

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statements and reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present fairly our financial position, results of operations, comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ deficit, and cash flows for the periods presented.

The results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending June 30, 2020 or for any other future annual or interim period.

Unaudited Pro Forma Balance Sheet Information—The unaudited pro forma balance sheet information at September 30, 2019 has been prepared to give effect to the automatic conversion of all of the Company’s outstanding redeemable convertible preferred stock into an equivalent number of shares of common stock upon (a) the closing of an underwritten public offering (IPO) in which the public offering price is at least the original issue price of Series H redeemable convertible preferred stock (Qualified IPO) or (b) the written consent of the holders of a majority of the then outstanding shares of redeemable convertible preferred stock excluding the holders of Series E-1 and Series F-1 redeemable convertible preferred stock. The unaudited pro forma balance sheet information also assumes the reclassification of the redeemable convertible preferred stock warrant liabilities to consolidated stockholders’ deficit as the warrants would be converted into warrants to purchase common stock upon the completion of the IPO. The shares of common stock issuable and the proceeds expected to be received in the Qualified IPO are excluded from the unaudited pro forma balance sheet information.

Segment Reporting—The Company operates as one operating segment because its chief operating decision maker, who is its Chief Executive Officer, reviews its financial information on a consolidated basis for purposes of making decisions regarding allocating resources and assessing performance. All long-lived assets are located in the United States and all revenue is generated in the United States.

Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make various estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Management regularly assesses these estimates, including those related to fair value of common stock and stock-based compensation, fair value of redeemable convertible preferred stock warrant liabilities, the attribution method used to recognize revenue on annual contracts, useful lives of property and equipment, reserve for sales tax obligations, reserve for losses on funds held for customers and income taxes. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

Funds held for customers and customer fund deposits—Funds held for customers and the corresponding liability on customer fund deposits represent funds that are collected from customers for payments to their suppliers and funds that are collected on behalf of customers. Generally, these funds held for customers are initially deposited in separate bank accounts until remitted to the customers’ suppliers or to the customers. The funds held for customers are restricted for the purpose of satisfying the customers’ fund obligations and are not available for general business use by the Company. The Company partially invests funds held for customers in highly liquid investments with maturities of three months or less and in marketable debt securities with maturities of more than three months to one year at the time of purchase. Funds held for customers that are invested in marketable debt securities are classified as available-for-sale. These investments are carried at fair value, with unrealized gains or losses included in accumulated other comprehensive (loss) income on the consolidated balance sheets and as a component of the consolidated statements of comprehensive loss. The Company contractually earns interest on funds held for customers with associated counterparties.

 

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Cash, cash equivalents and restricted cash—Cash and cash equivalents consist of cash in banks and highly liquid investments with maturities of three months or less at the time of purchase. Restricted cash consists of cash collateral required by a bank in connection with the Company’s money transmission activities and cash in bank deposits required by the Company’s lessors to satisfy letter of credit requirements under its lease agreements. The current portion of restricted cash is included in prepaid expenses and other current assets, and the non-current portion of restricted cash is included in other assets in the accompanying consolidated balance sheets.

Short–term investments—The Company invests excess cash in marketable debt securities with maturities of more than three months and less than one year. These securities are classified as available-for-sale and recorded at fair value. Unrealized gains or losses are included in accumulated other comprehensive (loss) income on the consolidated balance sheets and as a component of the consolidated statements of comprehensive loss. An impairment loss is recognized when the decline in fair value of the marketable debt securities is determined to be other than temporary. The Company periodically evaluates its investments to determine if impairment charges are required. The Company determined that there was no other-than-temporary impairment on short-term investments during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited).

Concentrations of credit risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash and cash equivalents and short-term investments with major financial institutions that may at times exceed federally insured limits. Management believes that these financial institutions are financially sound and the Company has not experienced any losses. There were no customers that exceeded 10% of the Company’s total revenue for the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited).

Accounts receivable, unbilled revenue and allowance for doubtful accounts—Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. Unbilled revenue is recorded based on amounts that the Company expects to invoice to customers in the subsequent period. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of the accounts receivable. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice and the collection history of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. For all periods presented, the allowance for doubtful accounts was not significant.

Property and equipment—Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally one to five years. Leasehold improvements are amortized over the shorter of estimated useful lives of the assets or the lease term. Expenditures for repairs and maintenance are charged to expense as incurred. Upon disposition, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss is reflected in the consolidated statements of operations.

Capitalized internal-use software—The Company capitalizes internal and external direct costs incurred related to obtaining or developing internal-use software. Costs incurred during the application development stage are capitalized and are amortized using the straight-line method over the estimated useful lives of the software, generally three years commencing on the first day of the month following when the software is ready for its intended use. Costs related to planning and post-implementation

 

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activities are expensed as incurred. During the years ended June 30, 2018 and 2019, the Company capitalized $0.7 million and $1.6 million, respectively, in software development costs. During the three months ended September 30, 2018 and 2019 (unaudited), the Company capitalized $0.4 million and $0.2 million, respectively, in software development costs. As of June 30, 2018 and 2019 and September 30, 2019 (unaudited), the unamortized internal-use software was $1.3 million, $2.3 million and $2.2 million, respectively.

Impairment of long-lived assets—Long-lived assets, such as property and equipment and capitalized internal-use software, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying value of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized to the extent that the carrying value exceeds its fair value. There were no impairment charges recognized during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited).

Deferred offering costs—Deferred offering costs consist primarily of legal and other fees related to the proposed IPO. The deferred offering costs will be offset against IPO proceeds upon the consummation of the IPO. If the IPO is aborted, deferred offering costs will be expensed. As of June 30, 2018, the Company had no deferred offering costs that were capitalized. As of June 30, 2019 and September 30, 2019 (unaudited), the Company capitalized $0.4 million and $1.6 million of deferred offering costs, respectively, which are included in other assets in the accompanying consolidated balance sheets.

Redeemable convertible preferred stock warrants—Freestanding warrants to purchase shares of the Company’s redeemable convertible preferred stock are accounted for as liabilities on the consolidated balance sheets at their estimated fair value because the shares underlying the warrants contain contingent redemption features outside the Company’s control. Fair value is measured using the Black-Scholes option-pricing model. The warrants are remeasured to fair value at the end of each reporting period with changes in fair value recorded in general and administrative expenses in the consolidated statements of operations.

Revenue recognition—The Company generates revenue from two primary sources: (1) subscription and transaction fees and (2) interest on funds held for customers. The Company’s customers include small and midsize businesses (SMB), accounting firms and financial institutions.

Subscription and transaction fees by customer category are comprised of the following for the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) (in thousands):

     Year ended June 30,      Three months ended
September 30,
 
     2018      2019      2018      2019  
                   (unaudited)  

SMB and accounting firm customers

   $ 50,138      $ 76,292      $ 16,329      $ 26,169  

Financial institution customers

     6,854        9,659        1,841        2,379  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total subscription and transaction fees

   $ 56,992      $ 85,951      $ 18,170      $ 28,548  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Subscription and Transaction Fees

The Company enters into contracts with SMB and accounting firm customers to provide access to the functionality of the Company’s cloud-based payments platform to process transactions. These contracts are either cancelable arrangements paid monthly in arrears that can be terminated by either party without a penalty at any time or non-cancelable annual arrangements paid upfront. In July 2019, the Company updated its terms of service for cancelable contracts, whereby cancellations become effective at the end of the monthly subscription period in which the last transaction is processed. The Company charges its SMB and accounting firm customers subscription fees for access to its platform based on the number of users and level of service. The Company also charges these customers transaction fees based on actual transaction volume and the category of transaction. The contractual price for subscription and transaction activities is based on either the negotiated fees or the rates published on the Company’s website.

The Company’s contracts with SMB and accounting firm customers are generally comprised of a single performance obligation to provide access to the functionality of the Company’s platform to process transactions. The Company accounts for open-ended cancelable contracts as a daily service. Subscription revenue for such contracts is recognized ratably over the period that the customers have access to the platform. Transaction revenue is recognized on the date the transactions are processed by the Company.

The Company accounts for its annual and monthly contracts as a series of distinct services satisfied over time. The Company determines the transaction price for such contracts by estimating the total consideration to be received over the contract term from subscription and transaction fees. The Company recognizes the transaction price from annual contracts as a single performance obligation based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period.

Arrangements with Financial Institutions

The Company enters into multi-year contracts with financial institution customers that typically include fees for initial implementation services that are paid during the period the implementation services are provided as well as fees for subscription and transaction processing services, which are subject to guaranteed monthly minimum fees that are paid monthly over the contract term. These contracts enable the financial institutions to provide their customers with access to online bill pay services through the financial institutions’ online platforms. Implementation services are required up-front to establish an infrastructure that allows the financial institutions’ online platforms to communicate with the Company’s online platform. A financial institution’s customers cannot access online bill pay services until implementation is complete and the financial institution has provided acceptance of the implementation services. As such, initial implementation services and transaction processing services are not capable of being distinct from the subscription for online bill pay services and are combined into a single performance obligation. The consideration in these contracts varies based on the number of users and transactions processed. The Company has determined it meets the variable consideration allocation exception and therefore recognizes guaranteed monthly payments and any overages as revenue in the month they are earned. Implementation fees are recognized based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period. The ability of the financial institution customers to renew their contracts without having to pay up-front implementation fees again provides them a material right. Material rights, which have not been significant to date, are treated as separate performance obligations and are recognized over the expected period of benefit. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price.

 

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Remaining Performance Obligations with Financial Institutions

As of June 30, 2019, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) was $34.0 million. Of this amount, the Company expects to recognize $8.7 million within one year and $25.3 million between one and five years. As of September 30, 2019 (unaudited), the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) was $41.5 million. Of this amount, the Company expects to recognize $9.5 million within one year and $32.0 million thereafter.

Deferred revenue

Subscription and transaction fees from customers with which the Company has annual or multi-year contracts are generally billed in advance. These fees are initially recorded as deferred revenue and subsequently recognized as revenue as the performance obligation is satisfied. Deferred revenue is shown as current or non-current in the consolidated balance sheets. The current portion of the deferred revenue was $3.3 million and $3.5 million as of June 30, 2018 and 2019, respectively. The non-current portion of the deferred revenue was $1.9 million and $1.8 million as of June 30, 2018 and 2019, respectively. The current and non-current portion of the deferred revenue was $3.4 million and $1.8 million, respectively, as of September 30, 2019 (unaudited). Fees for monthly subscription and transaction fees are billed in arrears on a monthly basis. During the year ended June 30, 2019, the Company recognized $3.4 million of revenue that was included in the deferred revenue balance as of June 30, 2018. During the three months ended September 30, 2019 (unaudited), the Company recognized $1.3 million of revenue that was included in the deferred revenue balance as of June 30, 2019.

Interest on Funds Held for Customers

The Company also earns revenue from interest earned on funds held for customers that are initially deposited into the Company’s bank accounts that are separate from the Company’s operating cash accounts until remitted to the customers or their suppliers. The Company partially invests funds held for customers in highly liquid investments with maturities of three months or less and in marketable debt securities with maturities of three months to one year at the time of purchase. Interest and fees earned are recognized based on the effective interest method and also include the accretion of discounts and the amortization of premiums on marketable debt securities.

Deferred costs—Deferred costs consist of (i) deferred sales commissions that are incremental costs of obtaining customer contracts and (ii) deferred service costs, primarily direct payroll costs, for implementation services provided to customers prior to the launching of the Company’s products for general availability (go-live) to the users. Sales commissions paid on renewals are not material and not commensurate with sales commissions paid on the initial contract. Deferred sales commissions are amortized ratably over four to six years, taking into consideration the initial contract term and expected renewal periods. Deferred service costs are amortized ratably over the estimated benefit period of the capitalized costs starting on the go-live date of the service. The current portion of the deferred sales commissions, which is included in prepaid expenses and other current assets, was $1.1 million, $1.7 million, and $1.9 million as of June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively. The non-current portion of the deferred sales commissions, which is included in other assets, was $2.1 million, $3.1 million and $3.4 million as of June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively. The current portion of the deferred service costs, which is included in prepaid expenses and other current assets, was $0.8 million, $0.8 million, and $0.7 million as of June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively. The non-current portion of the deferred service costs, which is included in other assets, was $2.3 million, $2.2 million, and $2.0 million as of June 30, 2018 and 2019 and September 30, 2019 (unaudited),

 

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respectively. The amortization of deferred sales commissions was $1.0 million, $1.4 million, $0.3 million, and $0.5 million during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited), respectively. The amortization of deferred service costs was $0.4 million, $1.1 million, $0.1 million, and $0.2 million during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited), respectively.

Cost of revenue—Cost of revenue consists primarily of personnel-related costs, including stock-based compensation expenses, for the Company’s customer success and payment operations teams, certain costs that are directly attributed to processing customers’ transactions (such as the cost of printing checks, postage for mailing checks, and expenses for processing payments), direct and amortized costs for implementing and integrating the Company’s platform into the customers’ systems, costs for maintaining, optimizing, and securing the Company’s cloud payments infrastructure, amortization of capitalized internal-use software, fees on the investment of customer funds, and allocation of overhead costs.

Research and development—Costs incurred in research and development, excluding development costs eligible for capitalization as internal-use software, are expensed as incurred.

Stock-based compensation—The Company uses the grant-date fair-value-based measurements for stock-based compensation using the Black-Scholes option-pricing model. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years, reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates the forfeiture rate based on its historical experience for annual grant years where the majority of the vesting terms have been satisfied.

Advertising—The Company expenses the costs of advertising, including promotional expenses, as incurred. Advertising expenses during the years ended June 30, 2018 and 2019 were $0.8 million and $3.7 million, respectively.

Other income, net—Other income, net consisted of the following during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) (in thousands):

 

     Year ended June 30,     Three months ended
September 30,
 
         2018             2019             2018             2019      
                 (unaudited)  

Interest income

   $ 1,058     $ 3,207     $ 482     $ 957  

Interest expense

     (427     (825     (153     (154

Other

     1       (49     (12     (164
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 632     $ 2,333     $ 317     $ 639  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income taxes—The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities and net operating loss (NOL) and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by

 

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determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company classifies any liabilities for unrecognized tax benefits as current to the extent that the Company anticipates payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

Net loss per share attributable to common stockholders—Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders for all periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Unaudited pro forma net loss per share attributable to common stockholders—The unaudited pro forma basic and diluted net loss per share attributable to common stockholders has been computed to give effect to the conversion of the shares of redeemable convertible preferred stock into common stock as if such conversion had occurred at the earlier of the beginning of the period or the date of issuance, if later. In addition, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains or losses resulting from the remeasurement of the redeemable convertible preferred stock warrant liabilities and expiration of preferred stock warrants as the warrants will be reclassified to additional paid-in capital upon conversion of the redeemable convertible preferred stock into common stock. The unaudited pro forma net loss per share attributable to common stockholders does not include the shares to be sold and related proceeds to be received from the Qualified IPO.

Emerging growth company status—The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until 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 earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards. The Company early adopted ASU 2014-09, Revenue from Contracts with Customers (ASC 606) during the year ended June 30, 2018 effective July 1, 2017 utilizing the full retrospective transition method. The Company expects to use the extended transition period for any other new or revised accounting standards during the period which the Company remains an emerging growth company.

New accounting pronouncements:

Adopted

In May 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies

 

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which changes to the terms or conditions of a share-based payment award are subject to the guidance on modification accounting. Entities would apply the modification accounting guidance unless the value, vesting requirements and classification of a share-based payment award are the same immediately before and after a change to the terms or conditions of the award. The Company adopted ASC 2017-09 on July 1, 2018 and it did not have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payment transactions, including the income tax consequences and classification of awards as either equity or liabilities. The Company adopted ASC 2016-09 on July 1, 2018 and it did not have a material impact on its consolidated financial statements.

Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires implementation costs incurred in a hosting arrangement that is a service contract to be capitalized and amortized over the term of the hosting arrangement. ASU 2018-15 is effective for nonpublic business entities in fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning December 15, 2021. Early adoption is permitted. The Company is still evaluating the impact of this amendment on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-15 removes, modifies and adds certain disclosure requirements under Topic 820, such as the removal of disclosure of valuation process for Level 3 fair value measurements and removal of disclosure of changes in unrealized gains and losses for recurring Level 3 fair value measurements. ASU 2018-13 is effective for all entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the impact of this amendment on its consolidated financial statements.

In June 2018, the FASB Issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for nonpublic business entities in fiscal years beginning after December 15, 2019, and interim periods within annual periods beginning December 15, 2020. Early adoption is permitted. The Company is still evaluating the impact of this amendment on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. Accordingly, restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the total amounts shown on the statement of cash flows at the beginning and at the end of period. ASU 2016-18 is effective for nonpublic business entities in fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. The Company plans to retrospectively adopt this ASU in its annual financial statements for the year ending June 30, 2020. The adoption of this ASU will change the presentation and classification of corporate restricted cash and restricted cash and cash equivalents included in funds held for customers on its consolidated statements of cash flows.

 

F-17


Table of Contents

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments which addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims, distributions received from equity method investees, beneficial interests in securitization transactions and the application of the predominance principle on separately identifiable cash flows. ASU 2016-15 is effective for nonpublic business entities in fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. The Company plans to retrospectively adopt this ASU in its annual financial statements for the year ending June 30, 2020. The Company has not yet determined the impact the adoption of this ASU will have on its consolidated statements of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements. The new standard establishes a right-of-use model that requires a lessee to recognize a right-of-use (ROU) asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. ASU 2016-02 is effective for nonpublic business entities in fiscal years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted. The Company is still evaluating the impact of this amendment on its consolidated financial statements.

Prior period adjustments—During the year ended June 30, 2018, the Company recorded an adjustment of $1.5 million (decrease in accumulated deficit at June 30, 2017) to reflect the impact of adopting ASC 606.

Reclassification Within Consolidated Statements of Cash Flows—Customer fund deposits represent the Company’s obligation to remit funds collected from customers for payments to their suppliers and funds collected on behalf of customers. The Company has reclassified the net change in customer fund deposits liability in the consolidated statements of cash flows from investing activities to financing activities for all periods presented. The impact of the reclassification during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) was as follows (in thousands):

 

     Year ended June 30,     Three months ended
September 30,
 
     2018     2019     2018     2019  
                 (unaudited)  

Net cash used in investing activities - as previously reported

   $ (71,750   $ (5,508   $ (5,296   $ (946

Impact of reclassification - net change in customer fund deposits liability

     (263,671     (414,293     (98,723     (137,186
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities - as reclassified

   $ (335,421   $ (419,801   $ (104,019   $ (138,132
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities - as previously reported

   $ 62,611     $ 77,362     $ 458     $ (731

Impact of reclassification - net change in customer fund deposits liability

     263,671       414,293       98,723       137,186  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities - as reclassified

   $ 326,282     $ 491,655     $ 99,181     $ 136,455  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTE 2—FAIR VALUE MEASUREMENT

The Company measures and reports its cash equivalents, short-term investments, funds held for customers that are invested in money market funds and marketable debt securities, and redeemable convertible preferred stock warrant liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

 

Level 1—Inputsare unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2—Inputsother than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

 

Level 3—Unobservableinputs that are supported by little or no market activity for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.

In determining fair value, the Company utilizes quoted market prices, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value.

 

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Table of Contents

The following tables set forth the fair value of assets and liabilities that were measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

 

     June 30, 2018  
     Level 1      Level 2      Level 3      Total  

Assets

           

Cash equivalents:

           

Money market funds

   $ 14,836      $ -        $ -        $ 14,836  

Corporate bonds

     -          7,175        -          7,175  
  

 

 

    

 

 

    

 

 

    

 

 

 
     14,836        7,175        -          22,011  
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments:

           

Corporate bonds

     -          47,696        -          47,696  

U.S. treasury securities

     12,955        -          -          12,955  

Asset-backed securities

     -          9,216        -          9,216  
  

 

 

    

 

 

    

 

 

    

 

 

 
     12,955        56,912        -          69,867  
  

 

 

    

 

 

    

 

 

    

 

 

 

Funds held for customers:

           

Money market funds

     303,650        -          -          303,650  

Certificates of deposit

     -          185,360        -          185,360  

Corporate bonds

     -          166,570        -          166,570  
  

 

 

    

 

 

    

 

 

    

 

 

 
     303,650        351,930        -          655,580  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 331,441      $ 416,017      $ -        $ 747,458  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Redeemable convertible preferred stock warrant liabilities

   $ -        $ -        $ 663      $ 663  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ -        $ -        $ 663      $ 663  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     June 30, 2019  
     Level 1      Level 2      Level 3      Total  

Assets

           

Cash equivalents:

           

Money market funds

   $ 13,718      $ -        $ -        $ 13,718  
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments:

           

U.S. treasury securities

     64,758        -          -          64,758  

Corporate bonds

     -          4,787        -          4,787  

Asset-backed securities

     -          2,424        -          2,424  
  

 

 

    

 

 

    

 

 

    

 

 

 
     64,758        7,211        -          71,969  
  

 

 

    

 

 

    

 

 

    

 

 

 

Funds held for customers:

           

Money market funds

     424,219        -          -          424,219  

Corporate bonds

     -          302,070        -          302,070  

Certificates of deposit

     -          105,377        -          105,377  

U.S. Treasury securities

     30,960        -          -          30,960  
  

 

 

    

 

 

    

 

 

    

 

 

 
     455,179        407,447        -          862,626  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 533,655      $ 414,658      $ -        $ 948,313  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Redeemable convertible preferred stock warrant liabilities

   $ -        $ -        $ 688      $ 688  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ -        $ -        $ 688      $ 688  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-20


Table of Contents
     September 30, 2019  
     Level 1      Level 2      Level 3      Total  
     (unaudited)  

Assets

           

Cash equivalents:

           

Money market funds

   $ 7,009      $ -        $ -        $ 7,009  

Corporate bonds

     -          2,000        -          2,000  
  

 

 

    

 

 

    

 

 

    

 

 

 
     7,009        2,000        -          9,009  
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments:

           

U.S. treasury securities

     64,963        -          -          64,963  

Corporate bonds

     -          6,430        -          6,430  
  

 

 

    

 

 

    

 

 

    

 

 

 
     64,963        6,430        -          71,393  
  

 

 

    

 

 

    

 

 

    

 

 

 

Funds held for customers:

           

Restricted cash equivalents

     575,020        63,220        -          638,240  

Corporate bonds

     -          284,275        -          284,275  

Certificates of deposit

     -          70,012        -          70,012  

U.S. treasury securities

     8,503        -          -          8,503  
  

 

 

    

 

 

    

 

 

    

 

 

 
     583,523        417,507        -          1,001,030  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets measured at fair value

   $ 655,495      $ 425,937      $ -        $ 1,081,432  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Redeemable convertible preferred stock warrant liabilities

   $ -        $ -        $ 853      $ 853  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities measured at fair value

   $ -        $ -        $ 853      $ 853  
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.

The fair values of the Company’s Level 1 instruments were derived from quoted market prices and active markets for these specific instruments.

The valuation techniques used to measure the fair values of Level 2 instruments were derived from non-binding market consensus prices that were corroborated with observable market data, quoted market prices for similar instruments, or pricing models.

The fair value measurement of the redeemable convertible preferred stock warrant liabilities is based on significant inputs not observed in the market and thus represents a Level 3 measurement. The Company estimated the fair value of the liability using the Black-Scholes option-pricing model and any change in fair value is recognized as a gain or loss in the consolidated statements of operations. The following table sets forth a summary of the changes in the fair value of Level 3 financial liabilities (in thousands):

 

     June 30,     September 30,
2019
 
     2018      2019  
                  (unaudited)  

Fair value, beginning of period

   $ 481      $ 663     $ 688  

Change in fair value

     182        319       165  

Forfeiture of warrants

     -          (294     -    
  

 

 

    

 

 

   

 

 

 

Fair value, end of period

   $ 663      $ 688     $ 853  
  

 

 

    

 

 

   

 

 

 

 

F-21


Table of Contents

NOTE 3—SHORT-TERM INVESTMENTS

Short-term investments consisted of the following (in thousands):

 

     June 30, 2018  
     Amortized
cost
     Gross
unrealized
losses
    Fair value  

Corporate bonds

   $ 47,722      $ (26   $ 47,696  

U.S. treasury securities

     12,965        (10     12,955  

Asset-backed securities

     9,228        (12     9,216  
  

 

 

    

 

 

   

 

 

 
   $ 69,915      $ (48   $ 69,867  
  

 

 

    

 

 

   

 

 

 

 

     June 30, 2019  
     Amortized
cost
     Gross
unrealized
gains
     Fair value  

U.S. treasury securities

   $ 64,683      $ 75      $ 64,758  

Corporate bonds

     4,787        -          4,787  

Asset-backed securities

     2,424        -          2,424  
  

 

 

    

 

 

    

 

 

 
   $ 71,894      $ 75      $ 71,969  
  

 

 

    

 

 

    

 

 

 

 

     September 30, 2019  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair
value
 
     (unaudited)  

U.S. treasury securities

   $ 64,913      $ 56      $ (6   $ 64,963  

Corporate bonds

     6,428        2        -         6,430  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 71,341      $ 58      $ (6   $ 71,393  
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and fair value amounts include accrued interest receivable of $0.2 million, $0.2 million and $0.2 million at June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively. There have been no significant realized gains or losses on the short-term investments for the periods presented.

The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2018 (in thousands):

 

     June 30, 2018  
     Fair
value
     Unrealized
Losses
 

Corporate bonds

   $ 21,396      $ (26

U.S. treasury securities

     7,977        (10

Asset-backed securities

     9,216        (12
  

 

 

    

 

 

 

Total

   $ 38,589      $ (48
  

 

 

    

 

 

 

Investments with unrealized losses as of June 30, 2018 had been in a continuous unrealized loss position for less than 12 months. The Company did not consider those unrealized investment losses as an other-than-temporary impairment of the investments.

 

F-22


Table of Contents

The fair value of the investments in U.S. treasury securities with unrealized losses as of September 30, 2019 (unaudited) totaled $7.0 million. Investments with unrealized losses as of September 30, 2019 have been in a continuous unrealized loss position for less than 12 months. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Therefore, the Company does not consider those unrealized investment losses as other-than-temporary impairment of the investments.

NOTE 4—FUNDS HELD FOR CUSTOMERS

Funds held for customers consisted of the following (in thousands):

 

     June 30,     September 30,  
     2018     2019     2019  
                 (unaudited)  

Restricted cash and other receivables

   $ 261,555     $ 470,971     $ 470,268  

Restricted cash equivalents

     303,650       424,219       638,240  

Corporate bonds

     166,570       302,070       284,275  

Certificates of deposit

     185,360       105,377       70,012  

U.S. Treasury securities

     -         30,960       8,503  
  

 

 

   

 

 

   

 

 

 

Total funds held for customers

     917,135       1,333,597       1,471,298  

Less—income earned by the Company included in other current assets

     (2,122     (4,291     (4,806
  

 

 

   

 

 

   

 

 

 

Total funds held for customers, net of income earned by the Company

   $ 915,013     $ 1,329,306     $ 1,466,492  
  

 

 

   

 

 

   

 

 

 

Income earned by the Company that is included in other current assets represents interest income, accretion of discount (offset by amortization of premium), and net unrealized gains on customer funds that were invested in money market funds and short-term marketable debt securities. Earnings from these investments are contractually earned by the Company and are expected to be transferred into the Company’s corporate deposit account upon sale or settlement of the associated investment.

Below is a summary of the fair value of funds held for customers that were invested in short-term marketable debt securities (in thousands):

 

     June 30, 2018  
     Amortized
cost basis
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  

Corporate bonds

   $ 166,641      $ 11      $ (82   $ 166,570  

Certificates of deposit

     185,418        19        (77     185,360  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 352,059      $ 30      $ (159   $ 351,930  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     June 30, 2019  
     Amortized
cost basis
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  

Corporate bonds

   $ 301,755      $ 327      $ (12   $ 302,070  

Certificates of deposit

     105,297        81        (1     105,377  

U.S. Treasury securities

     30,927        33        -         30,960  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 437,979      $ 441      $ (13   $ 438,407  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

F-23


Table of Contents
     September 30, 2019  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
    Fair value  
     (unaudited)  

Corporate bonds

   $ 284,049      $ 245      $ (19   $ 284,275  

Certificates of deposit

     69,989        31        (8     70,012  

U.S. treasury securities

     8,498        5        -         8,503  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 362,536      $ 281      $ (27   $ 362,790  
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and estimated fair value amounts include accrued interest receivable of $1.0 million, $1.9 million and $1.4 million at June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively.

The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2018 and 2019 and September 30, 2019 (unaudited) (in thousands):

 

     June 30, 2018  
     Fair value      Unrealized
Losses
 

Corporate bonds

   $ 67,013      $ (82

Certificates of deposit

     80,515        (77
  

 

 

    

 

 

 

Total

   $ 147,528      $ (159
  

 

 

    

 

 

 

 

     June 30, 2019  
     Fair value      Unrealized
Losses
 

Corporate bonds

   $ 46,065      $ (12

Certificates of deposit

     12,027        (1
  

 

 

    

 

 

 

Total

   $   58,092      $ (13
  

 

 

    

 

 

 

 

     September 30, 2019  
     Fair value      Unrealized
Losses
 
     (unaudited)  

Corporate bonds

   $ 76,201      $ (19

Certificates of deposit

     19,015        (8
  

 

 

    

 

 

 

Total

   $   95,216      $ (27
  

 

 

    

 

 

 

Investments with unrealized losses have been in a continuous unrealized loss position for less than 12 months. The Company does not intend to sell the investments and it is not likely that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Therefore, the Company does not consider those unrealized investment losses as other-than-temporary impairment of the investments. There have been no significant realized gains or losses on the short-term investments for the periods presented.

 

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Table of Contents

NOTE 5—SIGNIFICANT BALANCE SHEET COMPONENTS

Property and equipment—Property and equipment consisted of the following (in thousands):

 

     June 30,     September 30,
2019
 
     2018     2019  
               (unaudited)  

Computers, software and equipment

   $ 9,046     $ 10,341     $ 10,381  

Capitalized software

     1,831       3,387       3,602  

Furniture and fixtures

     1,535       1,859       2,821  

Leasehold improvements

     2,011       2,435       3,253  
  

 

 

   

 

 

   

 

 

 
     14,423       18,022       20,057  

Less: accumulated depreciation and amortization

     (8,475     (11,465     (12,450
  

 

 

   

 

 

   

 

 

 

Property and equipment, net

   $ 5,948     $ 6,557     $ 7,607  
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization expense during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) was $2.3 million, $3.2 million, $0.8 million and $1.0 million, respectively.

Other accrued and current liabilities—Other accrued and current liabilities consisted of the following (in thousands):

 

     June 30,      September 30,
2019
 
     2018      2019  
                   (unaudited)  

Accrued sales and use tax

   $ 935      $ 2,881      $ 3,469  

Current portion of a long-term payable for a purchase of software

     494        512        514  

Deferred rent and lease incentives

     193        494        417  

Non-sufficient funds reserve

     91        147        313  

Accrued license fees

     85        131        259  

Other

     1,203        2,391        2,759  
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,001      $ 6,556      $ 7,731  
  

 

 

    

 

 

    

 

 

 

NOTE 6—BANK BORROWINGS

Senior Secured Credit Facilities

On June 28, 2019, the Company entered into a Senior Secured Credit Facilities Credit Agreement (Senior Facilities Agreement) with Silicon Valley Bank, an affiliate of an investor of the Company, for a revolving credit facility of up to $50.0 million, which amount may be increased by up to $25.0 million upon request and subject to conditions. Under the Senior Facilities Agreement, Bill.com, LLC is the borrower and Bill.com Holdings, Inc. is the guarantor. The Senior Facilities Agreement expires on June 28, 2022. Concurrent with the closing of the Senior Facilities Agreement on June 28, 2019, the Amended and Restated Loan and Security Agreement entered into in October 2017 with the same bank was terminated.

 

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Borrowings under the Senior Facilities Agreement are subject to a borrowing base. In addition, borrowings under the Senior Facilities Agreement are subject to interest at a rate per annum determined as follows: (a) Eurodollar loans shall bear interest at a rate per annum equal to the Eurodollar rate, plus the applicable margin of 1.75% or 2.75% depending on the Company’s cash balance (Eurodollar rate is calculated based on the ratio of Eurodollar Base Rate, which is determined by reference to ICE Benchmark Administration London Interbank Offered Rate over the Eurocurrency Reserve Requirements, but not less than 0%), or (b) Alternate Base Rate (ABR) loans shall bear interest at a rate per annum equal to the ABR, minus the applicable margin of -0.25% or -1.25%, depending on the Company’s cash balance (ABR is equal to the highest of the (i) prime rate, (ii) Federal Funds effective rate plus 0.50%, and (iii) Eurodollar rate plus 1.25%).

The Senior Facilities Agreement requires the Company to comply with certain restricted covenants. As of June 30, 2019 and September 30, 2019 (unaudited), the Company was in compliance with the loan covenants. Borrowings under the Senior Facilities are secured by substantially all of the Company’s assets, and are fully and unconditionally guaranteed by Bill.com Holdings, Inc.

The Company had no outstanding borrowings under the Senior Facilities Agreement as of June 30, 2019 and September 30, 2019 (unaudited).

Amended and Restated Loan and Security Agreement

In October 2017, the Company entered into an Amended and Restated Loan and Security Agreement (Loan Agreement) with Silicon Valley Bank, an affiliate of an investor of the Company, that provided for a term loan of up to $10.0 million and a revolving line of credit of up to $15.0 million.

The term loan under the Loan Agreement allowed the Company to take term advances in two tranches of $7.5 million and $2.5 million, respectively. The Company borrowed $7.5 million under the first tranche in October 2017, which was used to repay in full all outstanding obligations under the old loan and security agreement with the same bank. The Company had no borrowings from the second tranche. The term loan bore interest at a floating rate per annum equal to 0.25% below the prime rate. The term loan, which had a 4-year term, was terminated upon the closing of the Senior Facilities Agreement with the same bank on June 28, 2019. All outstanding principal balances and accrued interest, including $0.2 million of a final balloon interest payment, were paid in full as of June 30, 2019. As of June 30, 2018, the outstanding principal balance of the term loan was $7.5 million and the interest rate was 4.75%.

The revolving line of credit under the Loan Agreement provided for borrowings of up to a total of $15.0 million. Borrowings under the revolving line of credit bore interest at a floating rate per annum equal to the prime rate. The revolving line of credit, which had a three-year term, was terminated upon the closing of the Senior Facilities Agreement with the same bank on June 28, 2019. All outstanding principal balances and accrued interest under the revolving line of credit were paid in full as of June 30, 2019. As of June 30, 2018, the outstanding borrowing from the revolving line of credit was $2.0 million and the interest rate was 5.00%.

 

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NOTE 7—REDEEMABLE CONVERTIBLE PREFERRED STOCK

At June 30, 2019 and September 30, 2019 (unaudited), redeemable convertible preferred stock consisted of the following (in thousands):

 

     Shares
authorized
     Shares
issued and
outstanding
     Liquidation
preference
     Gross
proceeds
 

Series A

     5,400        2,700      $ 2,106      $ 2,106  

Series B

     21,733        10,815        15,790        15,790  

Series C

     9,197        4,599        8,500        8,500  

Series D

     12,425        6,200        15,500        15,500  

Series E

     17,512        8,756        35,200        35,200  

Series E-1

     1,393        697        2,800        2,800  

Series F

     9,756        4,878        29,750        29,750  

Series F-1

     82        41        250        250  

Series G

     16,892        8,446        82,500        82,500  

Series H

     11,700        5,303        88,117        88,117  
  

 

 

    

 

 

    

 

 

    

 

 

 
     106,090        52,435      $ 280,513      $ 280,513  
  

 

 

    

 

 

    

 

 

    

 

 

 

The significant features of the Company’s redeemable convertible preferred stock are as follows:

Dividend rights—Holders of Series A, Series B, Series C, Series D, Series E, Series E-1, Series F, Series F-1, Series G, and Series H preferred stock are entitled to receive noncumulative dividends, prior and in preference to the payment of any dividends to holders of common stock, of $0.06, $0.12, $0.148, $0.20, $0.3216, $0.3216, $0.4880, $0.4880, $0.7814 and $1.3292 per share, respectively, if and when declared by the Board of Directors. After the payment of such dividends to the holders of preferred stock in any calendar year, any additional dividends declared by the Board of Directors shall be payable to the holders of preferred stock and common stock ratably based on the number of common shares into which the then outstanding shares of preferred stock could be converted. No dividends have been declared as of June 30, 2019 and September 30, 2019 (unaudited).

Liquidation rights—Prior to any payment to holders of common stock, the holders of Series A, Series B, Series C, Series D, Series E, Series E-1, Series F, Series F-1, Series G and Series H preferred stock are entitled to receive, upon liquidation, winding-up, or dissolution of the Company, an amount equal to the original issue price per share, plus all declared and unpaid dividends on such shares of preferred stock. Thereafter, the remaining assets and funds, if any, shall be distributed pro rata among the common stockholders. If the assets or property are not sufficient to allow full payment to the holders of preferred stock as set forth above, the available assets shall be distributed ratably to the holders of preferred stock in proportion to the full preferential amount each holder is otherwise entitled to receive.

Conversion rights—Each share of preferred stock is convertible, at the option of the holder, into one share of common stock, subject to adjustment for events of issuance of stock dividends, a subdivision of preferred stock, a combination of preferred stock, or the conversion of preferred stock. The preferred stock shall automatically be converted into common stock on the earlier of (i) immediately prior to the closing of a Qualified IPO in which the public offering price is at least the original issue price of Series H preferred stock or (ii) the Company’s receipt of the written consent of the holders of the majority of the then outstanding shares of preferred stock (voting together as a single class on an as converted to common stock basis).

If the Series E, F, G and H preferred stock are automatically converted into shares of common stock in conjunction with a sale of the Company (Special Conversion), and upon such conversion, the

 

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proceeds payable to a holder of the shares of common stock issued (Special Common Share) are less than the proceeds such holder would have received on account of the Series E, F, G and H preferred stock shares in such sale of the Company had the Special Conversion not taken place, the Company shall issue to each holder of Special Common Shares such additional number of shares of common stock as necessary, when taken together with the proceeds payable in such sale of the Company on account of the Special Common Shares, to entitle each holder to receive aggregate proceeds in the Sale of the Company equal to the proceeds such holder would have received on account of holding the Series E, F, G and H preferred stock if the Special Conversion had not occurred.

Redemption rights—The preferred stock is not redeemable at the option of the holder thereof. Although not mandatorily redeemable or redeemable at any point during which the shares were outstanding, the preferred stock would become redeemable at the option of the holders in the event of certain “liquidation events” that are not solely within the control of the Company (including a merger, the sale of all of the Company’s assets, etc.). Therefore, all shares of preferred stock were presented outside of permanent equity. The Company did not adjust the carrying values of the redeemable convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable at either of the reporting dates. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if and when it becomes probable that such a liquidation event will occur.

Voting rights—The holders of each share of preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such share is convertible.

NOTE 8—STOCK-BASED COMPENSATION

In 2006 and 2016, the Company’s Board of Directors approved the adoption of the 2006 Equity Incentive Plan and the 2016 Equity Incentive Plan (together the “Option Plans”). The 2016 Equity Incentive Plan was adopted when the 2006 Equity Incentive Plan reached its ten-year term and was terminated. The Option Plans permit the Company to issue up to 6,337,779, 11,370,068 and 12,011,068 shares of the Company’s common stock as of June 30, 2018 and 2019 and September 30, 2019 (unaudited), respectively. The Option Plans provide for the grant of incentive and non-statutory stock options to employees, nonemployee directors, and consultants of the Company. Options granted under the Option Plans generally become exercisable ratably over a four-year period following the date of grant and expire ten years from the date of grant. Other than options with early exercise provisions, all options are exercisable only to the extent vested. Unvested shares of options granted with double trigger vesting acceleration will vest 50% in the event of a sale of the Company and the termination of the option holder. There were no outstanding unvested shares that had been early exercised as of June 30, 2018 and September 30, 2019 (unaudited). The total number of outstanding unvested shares that had been early exercised as of June 30, 2019 was not significant.

The exercise price of incentive stock options granted under the Option Plans must be at least equal to 100% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors. The exercise price of non-statutory options granted under the Option Plans must be at least equal to 85% of the fair value of the Company’s common stock at the date of grant, as determined by the Board of Directors.

 

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Stock option activity during the years ended June 30, 2018 and 2019 was as follows:

 

     Number of
Shares
Outstanding
(in thousands)
    Weighted
average
exercise price
per share
     Weighted
average
remaining
contractual term

(in years)
     Aggregate
intrinsic value
(in thousands)
 

Balance at June 30, 2017

     4,554     $ 2.27        7.95      $ 8,230  

Options granted

     1,742     $ 4.17        

Options exercised

     (341   $ 2.03        

Options cancelled/forfeited/expired

     (339   $ 2.99        
  

 

 

         

Balance at June 30, 2018

     5,616     $ 2.83        7.75      $ 13,640  

Options granted

     5,706     $ 8.30        

Options exercised

     (809   $ 2.10        

Options cancelled/forfeited/expired

     (486   $ 4.92        
  

 

 

         

Balance at June 30, 2019

     10,027     $ 5.90        8.37      $ 75,223  
  

 

 

         

Vested and expected to vest at June 30, 2019(1)

     8,670     $ 5.66        8.23      $ 67,129  
  

 

 

         

Vested at June 30, 2019

     3,241     $ 2.68        6.46      $ 34,755  
  

 

 

         

 

(1)

The expected-to-vest options are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options.

The total intrinsic value of options exercised during the years ended June 30, 2018 and 2019 was $0.7 million and $3.8 million, respectively. The intrinsic value was calculated as the difference between the estimated fair value of the Company’s common stock at exercise, as determined by the Board of Directors, and the exercise price of the in-the-money options. The weighted-average grant date fair value of options granted during the years ended June 30, 2018 and 2019 was $2.02 and $4.24 per share, respectively.

Stock-based compensation expense during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) was included in the following line items in the accompanying consolidated statements of operations (in thousands):

 

     Year ended June 30,      Three Months Ended
September 30,
 
         2018              2019              2018              2019      
                   (unaudited)  

Cost of revenue

   $ 78      $ 331      $ 69      $ 148  

Research and development

     429        1,128        233        671  

Sales and marketing

     508        922        166        382  

General and administrative

     530        1,701        139        1,075  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,545      $ 4,082      $ 607      $ 2,276  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2019, there was $18.5 million of unamortized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of 3.4 years. As of September 30, 2019 (unaudited), there was $24.4 million of unamortized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of 3.3 years. The Company received $0.7 million and $1.7 million from options exercised during the years ended June 30, 2018 and 2019, respectively.

 

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The fair value of options granted during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and 2019 (unaudited) was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

     Year ended June 30,     Three months ended
September 30,
 
     2018      2019     2018     2019  
                  (unaudited)  

Expected term (in years)

     6.25        6.25       6.25       6.25  

Expected volatility

     45.0% to 55.1      46.0% to 51.0     46.0     50.0

Risk-free interest rate

     2.05% to 2.89      2.19% to 2.89     2.89     1.59% to 1.88

Expected dividend yield

     0      0     0     0

The fair value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in the Company’s operations, valuations performed by an independent third party, sales of preferred stock, actual operating results and financial performance, the conditions in the industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock, among other factors.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected dividend yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

 

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NOTE 9—STOCK WARRANTS

As of June 30, 2018 and 2019 and September 30, 2019 (unaudited), the following warrants were issued and outstanding (in thousands except per share amounts):

 

     Number of Warrants Issued and Outstanding      Weighted
average
exercise price
per share
     Expiration
date
 
     June 30, 2018      June 30, 2019      September 30, 2019  
                   (unaudited)                

Series B redeemable convertible preferred stock warrants

     103        51        51      $ 1.46        January 2020  

Series D redeemable convertible preferred stock warrants

     12        12        12      $ 2.50        May 2020  

Common stock warrants

     -          63        63      $ 6.40        April 2024  
  

 

 

    

 

 

    

 

 

       

Total

     115        126        126        
  

 

 

    

 

 

    

 

 

       

The Company re-measures its outstanding redeemable convertible preferred stock warrant liabilities to fair value using the Black-Scholes option-pricing model. The key inputs used in the valuation were as follows:

 

     June 30,     September 30,
2019
 
     2018     2019  
                 (unaudited)  

Expected term (in years)

     1.04       0.58       0.32  

Expected volatility

     46.0     51.0     50.0

Risk-free interest rate

     2.3     2.0     1.9

Expected dividend yield

     0     0     0

Estimates of expected term were based on the remaining contractual period of the warrant. Estimates of the volatility for the option-pricing model were based on the volatility of respective preferred stock. The risk-free interest rate was based on the U.S. Treasury yield for a term consistent with the estimated expected term.

The Company has an agreement with a customer to issue warrants for up to 5.6 million shares of the Company’s common stock and non-voting common stock at an exercise price of $4.50 per share over a period of five years. Issuance of the warrants is contingent upon certain performance conditions and subject to certain limits. As of June 30, 2018 and 2019 and September 30, 2019 (unaudited), there were no warrants issued or issuable under this agreement. The Company has concluded that the performance conditions for the issuance of this warrant are not probable of being met.

NOTE 10—INCOME TAXES

The components of loss before the provision for (benefit from) income taxes were as follows (in thousands):

 

     Year ended June 30,  
     2018     2019  

Domestic

   $ (7,185   $ (7,470

Foreign

     -         -    
  

 

 

   

 

 

 

Total

   $ (7,185   $ (7,470
  

 

 

   

 

 

 

 

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The components of provision for (benefit from) income taxes were as follows (in thousands):

 

     Year ended June 30,  
         2018              2019      

Current:

     

Federal

   $ -        $ -    

State

     10        20  

Foreign

        -    
  

 

 

    

 

 

 

Total current

     10        20  
  

 

 

    

 

 

 

Deferred:

     

Federal

     -          (142

State

     -          (34

Foreign

     -          -    
  

 

 

    

 

 

 

Total deferred

     -          (176
  

 

 

    

 

 

 

Provision for (benefit from) income taxes

   $ 10      $ (156
  

 

 

    

 

 

 

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (Tax Act) was enacted into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as re-measuring its U.S. deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities. The Tax Act did not have material impact on the Company’s consolidated financial statements due to its historical loss position and the full valuation allowance on its deferred tax assets.

As of June 30, 2019, pursuant to SEC Staff Accounting Bulletin (SAB) 118 (regarding the application of ASC 740 associated with the enactment of the Tax Act), the Company had considered SAB 118 and concluded its accounting under ASC 740 for the provisions of the Tax Act was complete. There were no adjustments deemed necessary during the year ended June 30, 2019.

The items accounting for the difference between the income taxes computed at the federal statutory rate and the provision for (benefit from) income taxes consisted of the following (in thousands):

 

     Year ended June 30,  
     2018     2019  

Expected benefit at U.S. Federal statutory rate

   $ (1,976   $ (1,569

Stock-based compensation

     297       390  

Federal and state R&D credits

     (909     (2,111

Deferred tax asset re-measurement due to Tax Reform

     12,227       -    

Change in valuation allowance

     (9,753     3,029  

Other

     124       105  
  

 

 

   

 

 

 

Provision for income tax expense (benefit)

   $ 10     $ (156
  

 

 

   

 

 

 

The Company’s provision for (benefit from) income taxes during the three months ended September 30, 2018 and 2019 (unaudited) was determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during the interim period. The

 

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Company’s effective tax rate differs from the Federal statutory rate primarily due to the change in valuation allowance related mainly to our net operating loss carryforwards and research and development credits.

The components of deferred tax assets and liabilities were as follows as of June 30, 2018 and 2019, (in thousands):

 

     June 30,  
     2018     2019  

Deferred tax assets:

    

Accruals and reserves

   $ 916     $ 1,631  

Deferred revenue

     33       84  

Property and equipment

     73       -    

Stock-based compensation

     285       700  

Net operating loss carryforwards

     26,027       26,690  

Research and development credits

     3,056       5,649  
  

 

 

   

 

 

 

Total deferred tax assets before valuation allowance

     30,390       34,754  

Valuation allowance

     (29,590     (33,253
  

 

 

   

 

 

 

Deferred tax assets

   $ 800     $ 1,501  
  

 

 

   

 

 

 

Deferred tax liabilities:

    

Deferred contract costs

   $ (800   $ (1,229

Property and equipment

     -         (143

Other

     -         (129
  

 

 

   

 

 

 

Total deferred tax liabilities

   $ (800   $ (1,501
  

 

 

   

 

 

 

Net deferred tax assets (liabilities)

   $ -       $ -    
  

 

 

   

 

 

 

ASC 740 requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. The change in valuation allowance was approximately $10.0 million and $3.7 million during the years ended June 30, 2018 and 2019, respectively, including a decrease in valuation allowance of $0.7 million related to the adoption of ASC 606 during the year ended June 30, 2018.

As of June 30, 2019, the Company had net operating loss carryforwards for federal and state tax purposes of $104.2 million and $71.3 million respectively, available to reduce future taxable income. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2026. As of June 30, 2019, the Company also has federal and state research and development tax credit carryforwards of $4.7 million and $4.3 million, respectively. If not utilized, the federal tax credits will expire at various dates beginning in 2027. The state tax credits do not expire and will carry forward indefinitely until utilized.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and other similar state provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization.

 

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As of June 30, 2018 and 2019, the Company had $1.5 million and $2.7 million, respectively, of unrecognized tax benefits related to federal and California R&D credits. Below is the reconciliation of the unrecognized tax benefits (in thousands):

 

     June 30,  
     2018      2019  

Balance at the beginning of the year

   $ 835      $ 1,457  

Additions based upon tax positions related to the current year

     -          1,028  

Additions based upon tax positions related to the prior year

     622        207  
  

 

 

    

 

 

 

Balance at the end of the year

   $ 1,457      $ 2,692  
  

 

 

    

 

 

 

The Company files United States federal, California, and other various state income tax returns. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state income tax purposes. The Company does not anticipate any material change to its unrecognized tax benefits over the next twelve months. A number of the Company’s tax returns remain subject to examination by taxing authorities. These include U.S. federal and state tax returns. The tax years from 2006 to 2018 remain open as a result of unused tax attributes being carried forward.

NOTE 11—COMMITMENTS AND CONTINGENCIES

Operating leases—The Company leases office space under non-cancelable operating leases that expire through March 2025. Rent expense is recognized on a straight-line basis over the lease term. Rent expense, net of sublease income, was $1.5 million and $2.3 million during the years ended June 30, 2018 and 2019, respectively, and $0.5 million and $0.7 million during the three months ended September 30, 2018 and 2019 (unaudited), respectively.

Future minimum lease payments under non-cancelable operating leases as of June 30, 2019 are as follows (in thousands):

 

Fiscal years ending June 30:

      

2020

   $ 2,611  

2021

     615  

2022

     631  

2023

     647  

2024

     663  

Thereafter

     510  
  

 

 

 

Total

   $ 5,677  
  

 

 

 

Other agreements—The Company has a ten-year strategic partnership agreement with a third party to market and promote the Company’s online bill payment products that expires in June 2027. Expense recognized under this agreement, which was included in sales and marketing expenses, was $2.3 million and $2.3 million during the years ended June 30, 2018 and 2019, respectively, and $0.6 million and $0.5 million during the three months ended September 30, 2018 and 2019 (unaudited), respectively.

The Company purchased a software license and maintenance and support services from a vendor that are payable on an installment basis through August 2021 under a non-cancellable service agreement.

 

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Future payments under these other agreements as of June 30, 2019 are as follows (in thousands).

 

Fiscal years ending June 30:

      

2020

   $ 3,250  

2021

     3,000  

2022

     2,000  

2023

     2,000  

2024

     2,000  

Thereafter

     5,500  
  

 

 

 

Total

   $ 17,750  
  

 

 

 

Litigation—From time to time, the Company is involved in lawsuits, claims, investigations, and proceedings that arise in the ordinary course of business. The Company records a provision for a liability when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of June 30, 2018 and 2019 and September 30, 2019 (unaudited), the estimate of the provision for litigation liability is immaterial. The Company reviews these provisions periodically and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable.

NOTE 12—NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders during the years ended June 30, 2018 and 2019 and the three months ended September 30, 2018 and September 30, 2019 (in thousands, except per share amounts):

 

     Year ended June 30,     Three months
ended

September 30,
 
     2018     2019     2018     2019  
                 (unaudited)  

Numerator

        

Net loss attributable to common stockholders

   $ (7,195   $ (7,314   $ (884   $ (5,696

Denominator

        

Weighted-average number of common shares used to compute net loss per share attributable to common stockholders:

        

Basic and diluted

     7,155       7,797       7,423       8,231  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders

        

Basic and diluted

   $ (1.01   $ (0.94   $ (0.12   $ (0.69
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Potentially dilutive securities, which were excluded from the diluted net loss per share calculations because they would have been antidilutive, are as follows (in thousands):

 

     Year ended
June 30,
     Three months
ended

September 30,
 
     2018      2019      2018      2019  
                   (unaudited)  

Redeemable convertible preferred stock as-converted

     47,131        52,435        47,131        52,435  

Stock options

     5,616        10,027        6,815        11,247  

Warrants to purchase redeemable convertible preferred stock

     115        63        115        63  

Warrants to purchase common stock

     -          63        23        63  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52,862        62,588        54,084        63,808  
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 13—PRO-FORMA NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS (Unaudited)

The following table presents the calculation of pro forma basic and diluted net loss per share attributable to common stockholders for the year ended June 30, 2019 and the three months ended September 30, 2019 (in thousands, except per share amounts):

 

     Year ended
June 30, 2019
    Three months
ended
September 30,
2019
 

Numerator

    

Net loss attributable to common stockholders

   $ (7,314   $ (5,696

Pro forma adjustment on revaluation of redeemable convertible preferred stock warrant liabilities

     25       165  
  

 

 

   

 

 

 

Pro forma net loss attributable to common stockholders, basic and diluted

   $ (7,289   $ (5,531
  

 

 

   

 

 

 

Denominator

    

Weighted-average number of common shares used to compute net loss per share attributable to common stockholders

     7,797       8,231  

Pro forma adjustment to reflect assumed conversion of redeemable convertible preferred stock into common stock

     49,802       52,434  
  

 

 

   

 

 

 

Weighted-average number of common shares used to compute pro forma net loss per share attributable to common stockholders, basic and diluted

     57,599       60,665  
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted

  

$

(0.13

  $ (0.09
  

 

 

   

 

 

 

 

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NOTE 14—SUBSEQUENT EVENTS

The Company evaluated its consolidated financial statements for subsequent events through September 5, 2019, the date the consolidated financial statements were available to be issued.

In July 2019, the Company’s board of directors granted options to purchase 965,993 shares of common stock at an exercise price of $13.40 per share under the 2016 Equity Incentive Plan.

In August 2019, the Company’s board of directors granted options to purchase 575,747 shares of common stock at an exercise price of $13.40 per share under the 2016 Equity Incentive Plan.

NOTE 15—SUBSEQUENT EVENTS (UNAUDITED)

The Company evaluated its unaudited interim consolidated financial statements for subsequent events through December 2, 2019, the date the unaudited interim consolidated financial statements were available to be issued.

In October 2019, the Company’s board of directors granted options to purchase 652,750 shares of common stock at an exercise price of $15.62 per share under the 2016 Equity Incentive Plan.

On November 13, 2019, the Company’s board of directors granted options to purchase 309,500 shares of common stock at an exercise price of $17.64 per share under the 2016 Equity Incentive Plan.

On November 26, 2019, the Company’s board of directors approved the 2019 Equity Incentive Plan (2019 Plan), which will become effective a day before the Company’s Registration Statement on Form S-1 is declared effective by the Securities and Exchange Commission (SEC). The 2019 Plan provides for the award of options, restricted stock awards, stock bonus awards, cash awards, stock appreciation rights, Restricted Stock Units (RSUs), and performance awards to purchase up to 7,100,000 shares of common stock plus the number of shares equal to the (i) reserved shares not issued under the Company’s 2016 Equity Incentive Plan (2016 Plan) on the effective date of the 2019 Plan, (ii) shares that are subject to stock options or other awards granted under the 2006 Equity Incentive Plan and the 2016 Plan (together as the “Prior Plans”) that cease to be subject to such stock options or other awards by forfeiture after the effective date of the 2019 Plan, (iii) shares issued under the Prior Plans before or after the effective date of the 2019 Plan pursuant to the exercise of stock options that are forfeited, (iv) shares issued under the Prior Plans that are repurchased by the Company, and (v) shares that are subject to stock options or other awards under the Prior Plans that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. The number of shares of common stock reserved for issuance under the 2019 Plan will increase automatically on July 1 of each of the first 10 years during the term of the 2019 Plan by an amount equal to 5% of the total number of shares of common stock and preferred stock (on as-converted basis) outstanding on the immediately preceding June 30th, unless the Board elects to authorize a lesser number of shares.

On November 26, 2019, the Company’s board of directors also approved the 2019 Employee Stock Purchase Plan (ESPP), which will become effective on the date the Company’s Registration Statement on Form S-1 is declared effective by the SEC. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (as amended) and will provide eligible employees a means to acquire shares of common stock through payroll deductions. Under the ESPP, the Company will initially reserve for issuance 1,400,000 shares of common stock, which will increase automatically on July 1 of each fiscal year during the term of the ESPP by the number of shares equal to 1% of the total number of shares of common stock and preferred stock (on as-converted basis) outstanding as of

 

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the immediately preceding June 30th, unless the Board elects to authorize a lesser number of shares; provided, that, the total number of shares issued under the ESPP may not exceed 14,000,000 shares of common stock. The ESPP provides for a 12-month offering period that will commence on each subsequent February 15th and August 15th, beginning on February 15, 2020, with each such offering period consisting of two separate 6-month purchase periods ending on August 14th and February 14th, respectively. Eligible employees can contribute up to 15% of their eligible compensation, subject to limitation as provided for in the ESPP, and purchase the common stock at a purchase price per share equal to 85% of the lesser of the fair market value of the common stock on (i) the offering date or (ii) the purchase date.

 

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LOGO

 

 

 

 

 

 


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all costs and expenses to be paid by us, other than underwriting discounts and commissions, in connection with the sale of the common stock being registered hereby. All amounts shown are estimates except for the Securities Exchange Commission (SEC) registration fee and Financial Industry Regulatory Authority (FINRA) filing fee:

 

     Amount
Paid or
to be Paid
 

SEC registration fee

   $ 23,708  

FINRA filing fee

     27,897  

NYSE listing fee

     250,000  

Printing and engraving expenses

     400,000  

Legal fees and expenses

     1,876,000  

Accounting fees and expenses

     2,150,000  

Transfer agent and registrar fees and expenses

     10,000  

Miscellaneous expenses

     423,903  
  

 

 

 

Total

   $ 5,161,508  
  

 

 

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (DGCL), authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the DGCL are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended (the Securities Act).

As permitted by the DGCL, the Registrant’s restated certificate of incorporation to be effective upon the completion of this offering contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:

 

   

any breach of the director’s duty of loyalty to the Registrant or its stockholders;

 

   

acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

   

under Section 174 of the DGCL (regarding unlawful dividends and stock purchases); or

 

   

any transaction from which the director derived an improper personal benefit.

As permitted by the DGCL, the Registrant’s restated bylaws to be effective upon the completion of this offering, provide that:

 

   

the Registrant is required to indemnify its directors and executive officers to the fullest extent permitted by the DGCL, subject to very limited exceptions;

 

   

the Registrant may indemnify its other employees and agents as set forth in the DGCL;

 

   

the Registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to very limited exceptions; and

 

   

the rights conferred in the restated bylaws are not exclusive.

 

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Prior to completion of this offering, the Registrant has entered into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant’s restated certificate of incorporation and restated bylaws, and to provide additional procedural protections. There is no pending litigation or proceeding involving a director or executive officer of the Registrant for which indemnification is sought. The indemnification provisions in the Registrant’s restated certificate of incorporation, restated bylaws, and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant’s directors and executive officers for liabilities arising under the Securities Act.

The Registrant currently carries liability insurance for its directors and officers.

Certain of the Registrant’s directors are also indemnified by their employers with regard to service on the Registrant’s board of directors.

In addition, the underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act, or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

From November 15, 2016 through November 15, 2019, the Registrant has issued and sold the following securities:

 

  1.

The Registrant granted stock options to employees, directors, and other service providers to purchase an aggregate of 10,487,652 shares of common stock under its 2016 Equity Incentive Plan, with per share exercise prices ranging from $3.74 to $17.64, and has issued 353,265 shares of common stock upon exercise of stock options under its 2016 Plan.

 

  2.

The Registrant has issued 1,018,907 shares of common stock upon exercise of stock options under its 2006 Equity Incentive Plan.

 

  3.

Between December 2018 and February 2019, the Registrant issued an aggregate of 5,303,344 shares of the Registrant’s Series H redeemable convertible preferred stock at a purchase price of approximately $16.6154 per share for an aggregate purchase price of approximately $88.1 million to 19 purchasers that each represented to the Registrant that it was an accredited investor.

 

  4.

Between June and December 2017, the Registrant issued an aggregate of 8,445,940 shares of the Registrant’s Series G redeemable convertible preferred stock at a purchase price of approximately $9.768 per share for an aggregate purchase price of approximately $82.5 million to 23 purchasers that each represented to the Registrant that it was an accredited investor.

 

  5.

In April 2019, the Registrant issued a warrant to purchase up to an aggregate of 25,000 shares of common stock at an exercise price of $8.76 per share.

 

  6.

In March 2019, the Registrant issued a warrant to purchase up to an aggregate of 15,000 shares of common stock at an exercise price of $4.18 per share.

 

  7.

In August 2018, the Registrant issued a warrant to purchase up to an aggregate of 22,500 shares of common stock at an exercise price of $5.26 per share.

 

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Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

 

Exhibit
Number

  

Description of Document

  1.1**    Form of Underwriting Agreement.
  3.1    Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.
  3.2*    Form of Restated Certificate of Incorporation, to be effective immediately prior to the completion of this offering.
  3.3*    Bylaws of the Registrant, as currently in effect.
  3.4*    Form of Restated Bylaws, to be effective immediately prior to the completion of this offering.
  4.1    Form of Common Stock certificate.
  4.2*    Tenth Amended and Restated Investors’ Rights Agreement, dated December  21, 2018, by and among the Registrant and certain security holders of the Registrant, as amended.
  4.3*    Warrant to Purchase Common Stock, dated August 2, 2018, by and between the Registrant and Kindred Partners, LLC.
  4.4*    Warrant to Purchase Common Stock, dated March 4, 2019, by and between the Registrant and Cole Capital, LLC.
  4.5*    Warrant to Purchase Series B Preferred Stock, dated January 4, 2010, by and between the Registrant and Comerica Bank.
  4.6*    Warrant to Purchase Stock, dated May 3, 2013, by and between the Registrant and City National Bank.
  4.7*    Warrant to Purchase Common Stock, dated April 4, 2019, by and between the Registrant and Riviera Partners Investments LLC.
  5.1    Opinion of Fenwick & West LLP.
10.1†*    Form of Indemnification Agreement.
10.2†*    2006 Equity Incentive Plan, as amended, and forms of equity agreements thereunder.
10.3†*    2016 Equity Incentive Plan, as amended, and forms of equity agreements thereunder.
10.4†    2019 Equity Incentive Plan, to become effective on the day immediately before the date of this prospectus, and forms of equity agreements thereunder.
10.5†    2019 Employee Stock Purchase Plan, to be effective on the effective date of this registration statement, and forms of subscription agreement thereunder.
10.6†    Form of Change in Control and Severance Agreement for executive officers.
10.7†    Offer Letter, effective as of the effective date of this registration statement, by and between the Registrant and René Lacerte.

 

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Exhibit
Number

  

Description of Document

10.8†    Offer Letter, effective as of the effective date of this registration statement, by and between the Registrant and John Rettig.
10.9†    Offer Letter, effective as of the effective date of this registration statement, by and between the Registrant and Bora Chung.
10.10*    Senior Secured Credit Facilities Agreement, dated June 28, 2019, by and between the Registrant and Silicon Valley Bank.
10.11*    Office Lease, dated December 2, 2013, as amended by that certain First Amendment to Office Lease dated February  29, 2016, that certain Second Amendment to Office Lease dated November 29, 2016 and that certain Third Amendment to Office Lease dated May 21, 2018, by and between the Registrant and EOSII Palo Alto Technology Center, LLC.
10.12*    Subordination, Nondisturbance and Attornment Agreement, dated March  30, 2017, by and among the Registrant, EOSII Palo Alto Technology Center, LLC and AXA Equitable Life Insurance Company.
21.1*    List of Subsidiaries of the Registrant.
23.1    Consent of Ernst & Young LLP, independent registered public accounting firm.
23.2    Consent of Fenwick & West LLP (included in Exhibit 5.1).
24.1*    Power of Attorney (included in the signature page to this Registration Statement on Form  S-1).

 

*

Previously filed.

**

To be filed by amendment.

Indicates management contract or compensatory plan.

(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 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 SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

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The undersigned Registrant hereby undertakes that:

 

  (1)

For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (2)

For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act, 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 Palo Alto, California, on the 2nd day of December, 2019.

 

BILL.COM HOLDINGS, INC.
By:   /s/ René Lacerte
 

René Lacerte

Chief Executive Officer

Pursuant to the requirements of the Securities Act, 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/ René Lacerte

René Lacerte

 

Chief Executive Officer and Director
(Principal Executive Officer)

  December 2, 2019

/s/ John Rettig

John Rettig

 

Chief Financial Officer and Executive Vice President, Finance and Operations
(Principal Financial and Accounting Officer)

  December 2, 2019

*

Steven Cakebread

 

Director

  December 2, 2019

*

David Chao

 

Director

  December 2, 2019

*

David Hornik

 

Director

  December 2, 2019

*

Brian Jacobs

 

Director

  December 2, 2019

*

Peter Kight

 

Director

  December 2, 2019

 

*

Thomas Mawhinney

 

 

Director

 

 

December 2, 2019

*

Allison Mnookin

 

Director

  December 2, 2019

*

Rory O’Driscoll

 

Director

  December 2, 2019

*

Steven Piaker

 

Director

  December 2, 2019

 

*   By:  

/s/ René Lacerte

   

René Lacerte

Attorney-in-Fact

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BDC PAYMENTS HOLDINGS, INC.

BDC Payments Holdings, Inc., a Delaware corporation, hereby certifies that:

1. The name of the corporation is BDC Payments Holdings, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was August 2, 2018 under the name BDC Payments Holdings, Inc.

2. This Amended and Restated Certificate of Incorporation of the corporation attached hereto as Exhibit “1”, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Amended and Restated Certificate of Incorporation of this corporation as previously amended or supplemented, has been duly adopted by the corporation’s Board of Directors and the requisite stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, said 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: December 21, 2018

 

BDC PAYMENTS HOLDINGS, INC.
By:  

/s/ René Lacerte

  René Lacerte, CEO


EXHIBIT “1”

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BDC PAYMENTS HOLDINGS, INC.

 

 

ARTICLE I

The name of the corporation is BDC Payments Holdings, Inc.

ARTICLE II

The address of the registered office of the corporation in the State of Delaware is 3500 South Dupont Highway, City of Dover, County of Kent, DE 19901. The name of its registered agent at that address is Incorporating Services, Ltd.

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 Delaware General Corporation Law of the State of Delaware.

ARTICLE IV

This corporation is authorized to issue three classes of shares, designated “Common Stock,” “Nonvoting Common Stock” and “Preferred Stock,” respectively, each of which shall have par value of $0.00001 per share. The total number of shares authorized to be issued is Two Hundred Eighty-Nine Million Three Hundred Ninety Thousand One Hundred Thirty-Four (289,390,134) consisting of (i) One Hundred Sixty-Nine Million Three Hundred Thousand (169,300,000) shares of Common Stock, (ii) Fourteen Million (14,000,000) shares of Nonvoting Common Stock and (iii) One Hundred Six Million Ninety Thousand One Hundred Thirty-Four (106,090,134) shares of Preferred Stock, of which Five Million Four Hundred Thousand (5,400,000) are designated as “Series A Preferred Stock,” Twenty One Million Seven Hundred Thirty-Two Thousand Seven Hundred Eighty-Four (21,732,784) are designated as “Series B Preferred Stock,” Nine Million One Hundred Ninety-Seven Thousand One Hundred Thirty-Nine (9,197,139) are designated as “Series C Preferred Stock,” Twelve Million Four Hundred Twenty-Five Thousand (12,425,000) are designated as “Series D Preferred Stock”, Seventeen Million Five Hundred Twelve Thousand Two Hundred Eighty-Two (17,512,282) are designated as “Series E Preferred Stock,” One Million Three Hundred Ninety-Three Thousand Thirty-Five (1,393,035) are designated as “Series E-1 Preferred Stock,” Nine Million Seven Hundred Fifty-Six Thousand Seventeen (9,756,017) are designated as “Series F Preferred Stock”, Eighty-One Thousand Nine Hundred Eighty-Three (81,983) are designated as “Series F-1 Preferred Stock,” Sixteen Million Eight Hundred Ninety-One Thousand Eight Hundred Ninety-Four (16,891,894) are designated as “Series G Preferred Stock,” and Eleven Million Seven Hundred Thousand (11,700,000) are designated as “Series H Preferred Stock.”


ARTICLE V

The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series F-1 Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Common Stock, and Nonvoting Common Stock are as hereinafter set forth in this Article V and, with respect to certain matters relating to the Series E-1 Preferred Stock and Series F-1 Preferred Stock, Article VI.

1. DEFINITIONS. For purposes of this Article V and Article VI, the following definitions apply:

1.1 “Board” shall mean the Board of Directors of the Company.

1.2 “Company” shall mean this corporation.

1.3 “Common Stock” shall mean the Common Stock, $0.00001 par value per share, of the Company.

1.4 “Common Stock Dividend” shall mean a stock dividend declared and paid on the Common Stock and Nonvoting Common Stock that is payable in shares of Common Stock and Nonvoting Common Stock, respectively.

1.5 “Filing Date” shall mean the date on which this Amended and Restated Certificate of Incorporation is accepted for filing by the Secretary of State of the State of Delaware.

1.6 “Nonvoting Common Stock” shall mean the Nonvoting Common Stock, $0.00001 par value per share, of the Company.

1.7 Original Issue Price shall mean Thirty Nine Cents ($0.39) per share for the Series A Preferred Stock, Seventy Three Cents ($0.73) per share for the Series B Preferred Stock, Ninety Two Cents and Forty Two Ten Thousandths ($0.9242) per share for the Series C Preferred Stock, One Dollar Twenty Five Cents ($1.25) per share for the Series D Preferred Stock, Two Dollars One Cent ($2.01) per share for each of the Series E Preferred Stock and Series E-1 Preferred Stock, Three Dollars Four Cents and Ninety-Four Ten Thousandths ($3.0494) per share for each of the Series F Preferred Stock and Series F-1 Preferred Stock, Four Dollars Eighty-Eight Cents and Forty Ten Thousandths ($4.8840) per share for the Series G Preferred Stock and Eight Dollars Thirty Cents and Seventy-Seven Ten Thousandths ($8.3077) per share for the Series H Preferred Stock (in each case as adjusted to the extent necessary to reflect any Preferred Stock Event (as defined below)).

1.8 “Permitted Repurchases” shall mean the repurchase by the Company of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Company or any Subsidiary that


are subject to restricted stock purchase agreements, vesting agreements, stock option exercise agreements, or similar agreements under which the Company has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Company’s exercise of a right of first refusal to repurchase such shares, as applicable.

1.9 “Preferred Dividend Rate” shall mean Three Cents ($0.03) per share per annum for the Series A Preferred Stock, Six Cents ($0.06) per share per annum for the Series B Preferred Stock, Seven Cents and Four Thousandths ($0.074) per share per annum for the Series C Preferred Stock, Ten Cents ($0.10) per share per annum for the Series D Preferred Stock, Sixteen Cents and Eight Ten Thousandths ($0.1608) per share per annum for each of the Series E Preferred Stock and Series E-1 Preferred Stock, Twenty-Four Cents and Forty Ten Thousandths ($0.2440) per share per annum for each of the Series F Preferred Stock and Series F-1 Preferred Stock, Thirty-Nine Cents and Seven Ten Thousandths ($0.3907) per share per annum for the Series G Preferred Stock and Sixty-Six Cents and Forty-Six Ten Thousandths ($0.6646) per share per annum for the Series H Preferred Stock (as adjusted to the extent necessary to reflect any Preferred Stock Event (as defined below)).

1.10 “Preferred Stock” shall mean the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series E-1 Preferred Stock, the Series F Preferred Stock, the Series F-1 Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock of the Company.

1.11 Preferred Stock Event shall mean any of the following events occurring after the Filing Date with respect to a series of Preferred Stock: (i) the issuance by the Company of additional shares of such series of Preferred Stock as a dividend or other distribution on the outstanding shares of such series of Preferred Stock, (ii) a subdivision of the outstanding shares of Preferred Stock into a greater number of shares of such Preferred Stock, (iii) a combination of the outstanding shares of such series of Preferred Stock into a smaller number of shares of such series of Preferred Stock, or (iv) the conversion or change of the outstanding shares of such series of Preferred Stock into a different number of shares of some other class or classes of stock whether by recapitalization, reclassification or otherwise, provided, however, that in no event shall a Preferred Stock Event be deemed to include, a liquidation, dissolution or winding up of the Company provided for in Section 3, or any conversion, recapitalization, reclassification or other event for which adjustment is made under Section 5.

1.12 “Series A Preferred Stock” shall mean the Series A Preferred Stock, $0.00001 par value per share, of the Company.

1.13 “Series B Preferred Stock” shall mean the Series B Preferred Stock, $0.00001 par value per share, of the Company.

1.14 “Series C Preferred Stock” shall mean the Series C Preferred Stock, $0.00001 par value per share, of the Company.

1.15 “Series D Preferred Stock” shall mean the Series D Preferred Stock, $0.00001 par value per share, of the Company.


1.16 “Series E Preferred Stock” shall mean the Series E Preferred Stock, $0.00001 par value per share, of the Company.

1.17 “Series E-1 Preferred Stock” shall mean the Series E-1 Preferred Stock, $0.00001 par value per share, of the Company.

1.18 “Series F Preferred Stock” shall mean the Series F Preferred Stock, $0.00001 par value per share, of the Company.

1.19 “Series F-1 Preferred Stock” shall mean the Series F-1 Preferred Stock, $0.00001 par value per share, of the Company.

1.20 “Series G Preferred Stock” shall mean the Series G Preferred Stock, $0.00001 par value per share, of the Company.

1.21 “Series H Preferred Stock” shall mean the Series H Preferred Stock, $0.00001 par value per share, of the Company.

1.22 “Subsidiary” shall mean any corporation, limited liability company, partnership or other entity of which at least fifty percent (50%) of the outstanding voting stock or other ownership interests having ordinary voting power is at the time owned directly or indirectly by the Company or by one or more of such subsidiary corporations, limited liability companies, partnerships or other entities.

2. DIVIDEND RIGHTS.

2.1 Preferred Stock Dividend Preference. In each calendar year, the holders of each series of the then outstanding Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Company legally available therefor, noncumulative dividends at the applicable Preferred Dividend Rate for such series, prior and in preference to the payment of any dividend on the Common Stock and Nonvoting Common Stock in such calendar year. No dividends shall be paid with respect to the Common Stock or Nonvoting Common Stock during any calendar year unless dividends in the total amount of the applicable Preferred Dividend Rate shall have first been paid or declared and set apart for payment to the holders of each series of the Preferred Stock during that calendar year. Payments of any dividends to the holders of Preferred Stock shall be paid pro rata, on an equal priority, pari passu basis according to their respective dividend preferences as set forth herein. Dividends on the Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Preferred Stock by reason of the fact that the Company shall fail to declare or pay dividends on the Preferred Stock in the amount of the Preferred Dividend Rate for the Preferred Stock or in any other amount in any calendar year or any fiscal year of the Company, whether or not the earnings of the Company in any calendar year or fiscal year were sufficient to pay such dividends in whole or in part. Notwithstanding anything to the contrary herein, the provisions of Sections 2.1, 2.2 and 2.3 shall not apply to any Common Stock Dividend, any Permitted Repurchase, or any dividend for which an adjustment is made pursuant to Section 5.5.


2.2 Participation Rights. If, after dividends in the full preferential amount specified in Section 2.1 for the Preferred Stock have been paid or declared and set apart in any calendar year of the Company, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared pro rata on the Common Stock, Nonvoting Common Stock, and the Preferred Stock according to the number of shares of Common Stock and Nonvoting Common Stock held by such holders, where each holder of shares of Preferred Stock is to be treated for this purpose as holding the greatest whole number of shares of Common Stock or Nonvoting Common Stock then issuable upon conversion of all shares of Preferred Stock, at the then effective and applicable conversion rate, held by such holder pursuant to Section 5 (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate). The “Series E Conversion Rate” means the quotient obtained by dividing the Original Issue Price for the Series E Preferred Stock by the Conversion Price for the Series E Preferred Stock as in effect on the effective date of the conversion (or deemed conversion) of such shares of Series E-1 Preferred Stock. The “Series F Conversion Rate” means the quotient obtained by dividing the Original Issue Price for the Series F Preferred Stock by the Conversion Price for the Series F Preferred Stock as in effect on the effective date of the conversion (or deemed conversion) of such shares of Series F-1 Preferred Stock.

2.3 Non-Cash Dividends. Subject to Article VI, Section 2.2, whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board.

3. LIQUIDATION RIGHTS. In the event of any Sale of the Company (as defined below), the proceeds, funds and assets that may be legally distributed to the Company’s stockholders (the “Available Funds and Assets”) shall be distributed to stockholders in the following manner:

3.1 Preferred Stock Liquidation Preference. Subject to the rights of holders of any new series of preferred stock of the Company that may be authorized after the Filing Date, the holder of each share of each series of Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any share of Common Stock or Nonvoting Common Stock, an amount per share equal to the applicable Original Issue Price plus all declared and unpaid dividends on such series of the Preferred Stock. If upon any Sale of the Company, the Available Funds and Assets to be distributed to the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of their full preferential amount described in this Section 3.1, then all of the Available Funds and Assets available to be distributed pursuant to this Section 3.1 shall be distributed among the holders of the then outstanding Preferred Stock pro rata, on an equal priority, pari passu basis, according to their full respective liquidation preferences as set forth herein.

3.2 No Participation Rights. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above in Section 3.1, then, subject to Section 3.5, all such remaining Available Funds and Assets shall be distributed on a pro rata basis among the holders of the then outstanding Common Stock and Nonvoting Common Stock according to the number of shares of Common Stock and Nonvoting Common Stock held by such holders.

 


3.3 Merger or Sale of Assets; Liquidation. The (i) reorganization, consolidation or merger of the Company with or into any other entity or entities in which the holders of the Company’s outstanding shares immediately before such reorganization, consolidation or merger do not, immediately after such reorganization, consolidation or merger retain stock (or other ownership interests) representing a majority of the voting power of the surviving entity or entities of such reorganization, consolidation or merger in substantially the same proportion as their ownership immediately prior to the reorganization, consolidation or merger as a result of their shareholdings in the Company immediately prior to the reorganization, consolidation or merger; (ii) sale, transfer or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Company; (iii) the closing of the transfer (whether by merger, consolidation or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons (other than an underwriter of the Company’s securities), of the Company’s securities if, after such closing, such person or group of affiliated persons would hold fifty percent (50%) or more of the outstanding voting stock of the Company (or the surviving or acquiring entity); or (iv) liquidation, dissolution or winding up of the Company (whether voluntary or involuntary), shall each be deemed to be a “Sale of the Company”. The treatment of any particular transaction or series of related transactions as a Sale of the Company may be waived by the vote or written consent of the holders of a majority of the outstanding Preferred Stock (voting together as a single class on an as converted to Common Stock basis) with the Series E-1 Preferred Stock being treated as convertible (without actual conversion) at the Series E Conversion Rate for this purpose and the Series F-1 Preferred Stock being treated as convertible (without actual conversion) at the Series F Conversion Rate for this purpose (the “Requisite Majority”). For the avoidance of doubt, the Series E-1 Preferred Stock and the Series F-1 Preferred Stock shall not be subject to the Regulatory Voting Restriction (as defined below) for purposes of the specific vote referenced in the immediately preceding sentence.

3.4 Non-Cash Consideration. Subject to Article VI, Section 2.2, if any assets of the Company distributed to stockholders in connection with any Sale of the Company are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board, except that any securities to be distributed to stockholders in a Sale of the Company shall be valued as follows:

(a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:

(i) if the securities are then traded on a national securities exchange (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and


(ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the 30-day period ending three (3) days prior to the distribution; and

(iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board.

(b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subparagraphs (a)(i), (ii) or (iii) of this Section 3.4 to reflect the approximate fair market value thereof, as determined in good faith by the Board.

3.5 Alternative Liquidation Rights. Notwithstanding the foregoing provisions, if in the event of a Sale of the Company a holder of shares of any series of Preferred Stock would be entitled to receive, pursuant to Section 3.1, an amount that is less than the amount that such holder would receive in such Sale of the Company if such shares were converted into Common Stock pursuant to Section 5 (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate) as of immediately prior to such Sale of the Company (the “Alternative Amount”), then in lieu of receiving any amounts under Section 3.1 on account of such shares, such holder shall instead receive the Alternative Amount on account of such shares.

3.6 Allocation of Escrow and Contingent Consideration. In the event of a Sale of the Company pursuant to this Article V, Section 3, if any portion of the consideration payable to the stockholders of the Company is payable only upon satisfaction of contingencies (the “Additional Consideration”), then the acquisition or similar agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Company in accordance with Sections 3.1 and 3.2 or, if applicable, Section 3.5, as if the Initial Consideration were the only consideration payable in connection with such Sale of the Company; and (b) any Additional Consideration which becomes payable to the stockholders of the Company upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Company in accordance with Sections 3.1 and 3.2 or, if applicable, Section 3.5, after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Section 3.6, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Sale of the Company shall be deemed to be Additional Consideration.


4. VOTING RIGHTS.

4.1 Common Stock and Nonvoting Common Stock.

(a) Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.

(b) Nonvoting Common Stock. The Nonvoting Common Stock shall have no voting rights. The number of authorized shares of Nonvoting Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.

4.2 Preferred Stock. Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to the provisions of Section 5 below at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate.

4.3 General Voting Matters.

(a) General. Subject to the foregoing provisions of this Section 4 and the Regulatory Voting Restriction, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the Company’s Bylaws (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as may be otherwise provided herein or by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of the Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.

Any references in this Amended and Restated Certificate of Incorporation or the bylaws of the Company to a majority or other proportion of stock or shares, including with respect to the percentage of stock or shares required to approve a matter, shall refer to such majority or other proportion of the voting power of such stock or shares, based on the votes that the holders of such outstanding stock or shares (including the Series E-1 Preferred Stock and the Series F-1 Preferred Stock, as subject to the Regulatory Voting Restriction, as applicable) are entitled to cast as of the record date for voting on (or taking action by consent with respect to) such matter.


(b) Regulatory Voting Restriction. Notwithstanding the stated or statutory voting rights of holders of shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, in no event shall a Regulated Holder (as defined below) and its Transferees (as defined below), collectively, be entitled to cast a number of votes representing more than 4.99% of the voting power of any “class” of “voting securities” of the Company entitled to vote on any matter (including matters with respect to which such holders are entitled or required to provide their approval or consent) (as such terms are interpreted, and as such percentage is calculated, under the BHCA (as defined below)), including matters with respect to which (i) the Preferred Stock votes together as a single class and (ii) the Preferred Stock votes with shares of Common Stock as a single class on an as converted to Common Stock basis (such voting rights to be allocated pro rata among the Regulated Holder and its Transferees based on the number of shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock held by each such holder), provided however, that if there are no shares of Preferred Stock outstanding other than the Series E-1 Preferred Stock and/or Series F-1 Preferred Stock, the ownership of shares of Series E-1 Preferred Stock and/or Series F-1 Preferred Stock will not convey to the holder thereof any right to vote for matters on which shares of Preferred Stock are entitled to vote as a single class; provided further, that the Regulatory Voting Restriction shall not apply to matters requiring approval of the holders of shares of Series E-1 Preferred Stock pursuant to Section 7(d) below or to matters requiring approval of the holders of shares of Series F-1 Preferred Stock pursuant to Section 7(f) below, or as otherwise provided expressly herein. The restrictions described in this Section 4.3(b) are referred to herein as the “Regulatory Voting Restriction”. Notwithstanding anything to the contrary in this Amended and Restated Certificate of Incorporation, this Section 4.3(b) shall automatically terminate and be of no further force or effect at such time that no shares of the Company’s capital stock are held by any Regulated Holder or Transferee (as those terms are defined in Article VI).

4.4 Board of Directors Election and Removal.

(a) Election.

(i) So long as at least 2,000,000 shares of Series A Preferred Stock are outstanding, the holders of the Series A Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the Company (such minimum share number to be adjusted to the extent necessary to reflect any Preferred Stock Event) (the “Series A Director”).

(ii) So long as at least 2,000,000 shares of Series B Preferred Stock are outstanding, the holders of the Series B Preferred Stock, voting as a separate series, shall be entitled to elect two (2) directors of the Company (such minimum share number to be adjusted to the extent necessary to reflect any Preferred Stock Event) (the “Series B Directors”).

(iii) So long as at least 2,000,000 shares of Series C Preferred Stock are outstanding, the holders of the Series C Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the Company (such minimum share number to be adjusted to the extent necessary to reflect any Preferred Stock Event) (the “Series C Director”).


(iv) So long as at least 2,000,000 shares of Series E Preferred Stock are outstanding, the holders of the Series E Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the Company (such minimum share number to be adjusted to the extent necessary to reflect any Preferred Stock Event) (the “Series E Director”). The term “Preferred Stock Directors” used herein shall mean those directors elected as a “Preferred Stock Designee” pursuant to that certain Tenth Amended and Restated Voting Agreement by and among the Company and the Holders named therein, dated on or about the Filing Date, as it may be amended from time to time thereafter.

(v) One (1) director of the Company shall be elected by the holders of the outstanding Common Stock, voting as a separate class.

(vi) Any remaining directors of the Company shall be elected by the holders of the outstanding shares of Common Stock and Preferred Stock voting together as a single class (on an as converted to Common Stock basis) including the holders of the Series E-1 Preferred Stock, whose shares shall be subject to the Regulatory Voting Restriction and treated as being convertible into Common Stock (without actual conversion) at the Series E Conversion Rate and the holders of the Series F-1 Preferred Stock whose shares shall be subject to the Regulatory Voting Restriction and treated as being convertible into Common Stock (without actual conversion) at the Series F Conversion Rate.

(b) Quorum; Required Vote.

(i) Quorum. At any meeting held for the purpose of electing directors, the presence in person or by proxy of the holders of a majority of the shares of the (u) Series A Preferred Stock, (v) Series B Preferred Stock, (w) Series C Preferred Stock, (x) Series E Preferred Stock, (y) Common Stock, or (z) the Common Stock and Preferred Stock entitled to vote thereon (voting together as a single class and on an as converted to Common Stock basis (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate)), respectively, shall constitute a quorum of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock, Common Stock, or the Common Stock and Preferred Stock, voting together, as the case may be, for the election of directors to be elected solely by the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock, Common Stock, or Common Stock and Preferred Stock, voting together as a single class and on an as converted to Common Stock basis (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate, respectively.


(ii) Required Vote. With respect to the election of any director or directors by the holders of the outstanding shares of the specified series, class or classes of stock given the right to elect such director or directors pursuant to Section 4.4(a) above (the “Specified Stock”), that candidate or those candidates (as applicable) shall be elected who either: (x) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes of the outstanding shares of such Specified Stock entitled to vote thereon, up to the number of directors to be elected by such Specified Stock; or (y) in the case of any such vote taken by written consent without a meeting, are elected by the written consent of the holders of a majority of outstanding shares of such Specified Stock entitled to vote thereon, calculated on an as converted to Common Stock basis (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate).

(c) Vacancy. If there shall be any vacancy in the office of a director elected by the holders of any Specified Stock pursuant to Section 4.4(a), then a successor to hold office for the unexpired term of such director may be elected by the required vote of holders of the shares of such Specified Stock specified in Section 4.4(b)(ii) above that are entitled to elect such director under Section 4.4(a), or as otherwise permitted by applicable law.

(d) Removal. Subject to Section 141(k) of the Delaware General Corporation Law, any director who shall have been elected to the Board by the holders of any Specified Stock pursuant to Section 4.4(a), or as otherwise provided in Section 4.4(c), may be removed during his or her term of office, either with or without cause, by the affirmative vote of shares representing a majority of the voting power of all the outstanding shares of such Specified Stock entitled to vote to elect such director under Section 4.4(a), given either at a meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders without a meeting, or as otherwise permitted by applicable law, and any vacancy created by such removal may be filled only in the manner provided in Section 4.4(c).

(e) Procedures. Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this Section 4.4, shall be held in accordance with the procedures and provisions of the Company’s Bylaws, the Delaware General Corporation Law and applicable law regarding stockholder meetings and stockholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote).

4.5 Certain Non-Series E-1 and Series F-1 BHCA Matters. Notwithstanding the foregoing, or anything to the contrary in this Amended and Restated Certificate of Incorporation, any shares of Preferred Stock (but excluding any shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock) or Common Stock held by any holder of record thereof that delivers written notice to the Company stating that such holder’s ownership of such shares of Preferred Stock or Common Stock is subject to the ownership limitations under the Bank Holding Company Act of 1956, as amended, and the regulations promulgated thereunder and requesting that such shares be deemed non-voting Shares pursuant to the terms and conditions of this paragraph (such notice, a “BHCA Notice” and such shares “Regulated Shares”), shall until and unless such holder thereafter delivers written notice to the Company withdrawing the BHCA Notice, be deemed and considered non-voting shares for all purposes of this Amended and


Restated Certificate of Incorporation (including without limitation for purposes of this Section 4), the Company’s bylaws, and any other document, agreement or instrument specifying or defining the voting rights or powers of the Company’s stockholders, other than – in the case of Regulated Shares that are Preferred Stock – for purposes of giving consent to the waiver or exception from application to the Company of the Preferred Stock protective provisions contained in Sections 7(a)(i)-(iii), (vi), and (viii), and – in the case of Regulated Shares that are Series E Preferred Stock – Section 7(c) below, and – in the case of Regulated Shares that are Series F Preferred Stock – Section 7(e) below, in which circumstance such Regulated Shares shall be entitled to the same voting rights as other shares of the same series of Preferred Stock that are not Regulated Shares. Notwithstanding anything to the contrary in this Amended and Restated Certificate of Incorporation, this Section 4.5 shall automatically terminate and be of no further force or effect immediately prior to the earlier of (i) the closing of an IPO, and (ii) the closing of a Sale of the Company.

5. CONVERSION RIGHTS OF THE PREFERRED STOCK. The outstanding shares of Preferred Stock shall be convertible into Common Stock as follows:

5.1 Optional Conversion.

(a) Non-Regulated Preferred Stock. At the option of the holder thereof, each share of Preferred Stock, other than the Series E-1 Preferred Stock and Series F-1 Preferred Stock, (collectively, the “Non-Regulated Preferred Stock”) shall be convertible, at any time, into fully paid and nonassessable shares of Common Stock as provided herein.

(b) Non-Regulated Preferred Stock held by a BHCA Holder. Notwithstanding anything to the contrary in Section 5.1(a) or 5.2(a), if a BHCA Holder (as defined below) holding Non-Regulated Preferred Stock owns or controls, or may be deemed to own or control greater than 4.99% of the voting power of any class of voting securities of the Company (as such terms are defined and used, and as such percentage is calculated, under the BHCA (as defined in Article VI)) (the “BHCA Voting Threshold”), on an as-converted basis, then the Non-Regulated Preferred Stock held by such BHCA Holder shall be convertible into fully paid and nonassessable shares of Common Stock only to the extent that the BHCA Voting Threshold would not be exceeded, and the remaining shares of Non-Regulated Preferred Stock held by such BHCA Holder shall instead be convertible into fully paid and nonassessable shares of Nonvoting Common Stock; provided that prior to the actual conversion of Non-Regulated Preferred Stock held by a BHCA Holder, for purposes of determining whether and to what extent such BHCA Holder’s shares of Non-Regulated Preferred Stock exceed the BHCA Voting Threshold for a particular vote or consent of a given class of voting securities of the Company, the voting power of such BHCA Holder shall be calculated with respect to such class of voting securities of the Company, and for purposes of such vote or consent, the Non-Regulated Preferred Stock held by such BHCA Holder shall be deemed to be convertible into fully paid and nonassessable shares of Common Stock to the extent that the BHCA Voting Threshold would not be exceeded for such vote or consent, and the remaining shares of Non-Regulated Preferred Stock held by such BHCA Holder shall be deemed to be convertible into fully paid and nonassessable shares of Nonvoting Common Stock for purposes of such vote or consent. A “BHCA Holder” means (i) a bank holding company subject to the BHCA, that together with its


affiliates (as defined in Regulation Y (12 C.F.R. Part 225)), holds any shares of capital stock of the Company (such capital stock of the Company held by a BHCA Holder, the “BHCA Stock”) and (ii) any party to whom a party identified in clause (i) transfers shares of BHCA Stock and the transferees of such party (in each case, other than Permitted BHCA Transferees (as defined in Section 6)).

(c) Series E-1 Preferred Stock and Series F-1 Preferred Stock. Shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock shall not be convertible into Common Stock pursuant to this Section 5.1 in the hands of a Regulated Holder or its Transferees. Instead, upon notice to the Company from such a holder of shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock that it intends to exercise the rights granted pursuant to the remainder of this sentence (a “Deemed Conversion Notice”), (i) such holder’s shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, shall no longer be entitled to any rights of the Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, that are not also applicable to shares of Common Stock (or any shares into which such shares of Common Stock may be converted or exchanged), including without limitation the right to receive the amounts payable to holders of Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, pursuant to Sections 2 and 3 above, and such holders of Series E-1 Preferred Stock or Series F-1 Preferred Stock shall be deemed to have forever and finally waived all such rights; provided, however, that the rights set forth in Sections 4.2, 4.3, 7(d) and 7(f) and Article VI, as well as the Regulatory Voting Restriction, shall continue to apply to shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, and (ii) such holder of Series E-1 Preferred Stock or Series F-1 Preferred Stock thereafter shall be entitled to receive, in lieu of any amounts otherwise payable on the Series E-1 Preferred Stock or Series F-1 Preferred Stock hereunder (including any amounts payable pursuant to Section 3 above), only an amount per share equal to the amounts that may become payable to holders of Common Stock hereunder (as such securities are adjusted from time to time under this Amended and Restated Certificate of Incorporation, including, without limitation, pursuant to any stock split, stock dividend, combination, subdivision, recapitalization or the like with respect to the Common Stock occurring after the Deemed Conversion Notice is given) as if such Series E-1 Preferred Stock or Series F-1 Preferred Stock had been converted (but without actual conversion) into shares of Common Stock at the same time that the Deemed Conversion Notice was given at the Series E Conversion Rate or Series F Conversion Rate, respectively (a “Deemed Optional Conversion”); and provided further, however, that in the event that any property other than cash is payable to the holders of Common Stock, then the provisions of Article VI, Section 2.2 shall apply with regard to assets to be received by such holder of Series E-1 Preferred Stock or Series F-1 Preferred Stock following a Deemed Optional Conversion. For the avoidance of doubt, shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock that have been subject to a Deemed Optional Conversion pursuant to this Section 5.1 shall not be entitled to vote on any matters for which shares of Common Stock, and not shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, were entitled to vote.

(d) Each holder of Non-Regulated Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such


holder elects to convert the same and shall state therein the number of shares of Non-Regulated Preferred Stock being converted. Thereupon the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Non-Regulated Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date.

(e) If the conversion is in connection with an IPO (as defined below), the conversion may, at the option of any holder tendering Non-Regulated Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the Non-Regulated Preferred Stock shall not be deemed to have converted such Non-Regulated Preferred Stock until immediately prior to the closing of such sale of securities. If a conversion of Preferred Stock is in connection with automatic conversion provisions of Section 5.2(a)(2) below, such conversion shall be deemed to have been made on the conversion date described in the stockholder consent approving such conversion, and the persons entitled to receive shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holders of such shares of Common Stock as of such date.

5.2 Automatic Conversion.

(a) Preferred Stock. Subject to Section 5.1(b), each share of Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein, on the earlier to occur of (1) immediately prior to the closing of an underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company (an “IPO”) at a price to the public (before deduction of underwriters discounts or commissions) of at least the Original Issue Price of the Series H Preferred Stock (such IPO, a “Qualified IPO”), and (2) the Company’s receipt of the written consent of the Requisite Majority (excluding for this specific purpose the holders of the Series E-1 Preferred Stock and Series F-1 Preferred Stock); provided, however, that shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock shall only be converted into shares of Common Stock pursuant to this Section 5.2(a) if such conversion would not result in a Regulated Holder and its Transferees owning or controlling, or being deemed to own or control, collectively, greater than (x) 4.99% of the voting power of any class of voting securities of the Company or (y) 9.99% of the total equity of the Company (in each case, as such terms are defined and used, and as such percentages are calculated, under the BHCA (as defined in Article VI)).

(i) If shares of Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock or Series H Preferred Stock are automatically converted into Common Stock as part of a conversion of Preferred Stock pursuant to clause (2) of the first sentence of this Section 5.2(a) in conjunction with a Sale of the Company (such shares of Series E Preferred Stock, Series F Preferred Stock, Series G Preferred Stock or Series H Preferred Stock,


the “Converted Certain Series Shares” and such conversion, a “Special Conversion”) and the proceeds payable to a holder of the shares of Common Stock issued upon such conversion of Converted Certain Series Shares (the “Special Common Shares”) in such Sale of the Company are less than the proceeds that such holder would have received on account of the Converted Certain Series Shares in such Sale of the Company pursuant to Article V, Section 3 of this Amended and Restated Certificate of Incorporation (as such Section 3 was in effect immediately prior to the Special Conversion) had the Special Conversion not taken place, then notwithstanding anything to the contrary herein, effective immediately prior to the closing of such Sale of the Company, the Company shall issue to each holder of Special Common Shares such additional number of shares of Common Stock (“Additional Shares”) as are necessary, when taken together with the proceeds payable in such Sale of the Company on account of the Special Common Shares, to entitle such holder to receive aggregate proceeds in the Sale of the Company equal to the proceeds such holder would have received on account of holding the Converted Certain Series Shares upon whose conversion such Special Common Shares were issued as if the Special Conversion had not occurred. A conversion of Preferred Stock pursuant to clause (2) of the first sentence of this Section 5.2(a) shall not be deemed to be effected “in conjunction with” a Sale of the Company and shall not constitute a Special Conversion if the consent of the holders of Preferred Stock necessary to effect such conversion is delivered to the Company more than three (3) months prior to the date on which definitive agreements for such Sale of the Company are entered into by the parties thereto.

(b) Series E-1 Preferred Stock and Series F-1 Preferred Stock.

(i) Notwithstanding anything to the contrary contained herein, no shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock shall be convertible into shares of Common Stock pursuant to this Section 5.2 (unless such conversion is in connection with a Permitted Regulatory Transfer or complies with the proviso at the end of the first sentence of Section 5.2(a)), but instead, upon any such conversion of the Non-Regulated Preferred Stock that does not also cause the conversion of the Series E-1 Preferred Stock or Series F-1 Preferred Stock, (x) the Series E-1 Preferred Stock and Series F-1 Preferred Stock shall no longer be entitled to any rights of the Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, that are not also applicable to shares of Common Stock (or any shares into which such shares of Common Stock may be converted or exchanged), including without limitation the right to receive the amounts payable to holders of Series E-1 Preferred Stock or Series F-1 Preferred Stock pursuant to Section 2 and Section 3 above, and such holder of Series E-1 Preferred Stock or Series F-1 Preferred Stock shall be deemed to have forever and finally waived all such rights; provided, however, that the rights set forth in Sections 4.2, 4.3, 7(d) and 7(f) and Article VI, as well as the Regulatory Voting Restriction, shall continue to apply to shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock, and (y) each holder of Series E-1 Preferred Stock and Series F-1 Preferred Stock thereafter shall be entitled to receive in lieu of any amounts otherwise payable on the Series E-1 Preferred Stock or Series F-1 Preferred Stock hereunder (including any amounts payable pursuant to Section 3 above), only an amount per share equal to the amounts that may become payable to holders of Common Stock hereunder (as such securities are adjusted from time to time under this Amended and Restated Certificate of Incorporation, including, without limitation, pursuant to any stock split, stock dividend, combination, subdivision, recapitalization or the like with respect to the Common Stock occurring after such Deemed Automatic Conversion)


as if such Series E-1 Preferred Stock or Series F-1 Preferred Stock had been converted (but without actual conversion) into shares of Common Stock at the same time and at the same conversion ratio that all shares of Series E Preferred Stock or Series F Preferred Stock, respectively, have been automatically converted pursuant to Section 5.2(a) and as if Additional Shares, if any, had been issued to such holder of Series E-1 Preferred Stock or Series F-1 Preferred Stock (such number of Additional Shares being calculated in the same manner as is calculated for the Series E Preferred Stock or Series F Preferred Stock, respectively, pursuant to Section 5.2(a)) (a “Deemed Automatic Conversion”); and provided further, however, that in the event that any property other than cash is payable to the holders of Common Stock, then the provisions of Article VI, Section 2.2 shall apply with regard to assets to be received by holders of Series E-1 Preferred Stock and Series F-1 Preferred Stock. For the avoidance of doubt, shares of Series E-1 Preferred Stock and Series F-1 Preferred Stock that have been subject to a Deemed Automatic Conversion pursuant to this Section 5.2 shall not be entitled to vote on any matters for which shares of Common Stock, and not shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, as applicable, were entitled to vote.

(ii) In addition, unless otherwise converted into Common Stock pursuant to Section 5.2(a), upon consummation of a Permitted Regulatory Transfer, each share of Series E-1 Preferred Stock or Series F-1 Preferred Stock so transferred in such a Permitted Regulatory Transfer shall automatically be converted into (A) one (1) fully paid and nonassessable share of Series E Preferred Stock or Series F Preferred Stock, respectively, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to the Series E Preferred Stock or Series F Preferred Stock, respectively, if such Permitted Regulatory Transfer occurs prior to a Deemed Optional Conversion or Deemed Automatic Conversion, or (B) such number of fully paid and nonassessable shares of Common Stock determined as if such shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock were deemed converted pursuant to a Deemed Automatic Conversion, as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like with respect to such Common Stock, if such Permitted Regulatory Transfer occurs on or subsequent to a Deemed Optional Conversion or Deemed Automatic Conversion. Any shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock that are convertible (or deemed convertible) into Common Stock pursuant to this Section 5.2 shall be convertible (or deemed convertible) into such number of fully paid and nonassessable shares of Common Stock at the Series E Conversion Rate or Series F Conversion Rate, respectively. Automatic conversion of the Series E-1 Preferred Stock and Series F-1 Preferred Stock pursuant to this Section 5.2 shall be effective without any further action on the part of the holders of such shares and shall be effective whether or not the certificates for such shares are surrendered to the Company or its transfer agent.

5.3 Conversion Price. Each share of each series of Non-Regulated Preferred Stock shall be convertible in accordance with Section 5.1 or Section 5.2 above into the number of shares of Common Stock or Nonvoting Common Stock, as applicable (calculated as to each conversion to the nearest 1/100th of a share), which results from dividing the applicable Original Issue Price for such series by the applicable Conversion Price (as defined below) for such series of Preferred Stock that is in effect at the time of conversion. The initial Conversion Price per share for the Series A Preferred Stock shall be equal to the Original Issue Price for the Series A Preferred Stock, the initial Conversion Price for the Series B Preferred Stock shall be equal to the Original


Issue Price for the Series B Preferred Stock, the initial Conversion Price for the Series C Preferred Stock shall be equal to the Original Issue Price for the Series C Preferred Stock, the initial Conversion Price for the Series D Preferred Stock shall be equal to the Original Issue Price for the Series D Preferred Stock, the initial Conversion Price for the Series E Preferred Stock shall be equal to the Original Issue Price for the Series E Preferred Stock, Series F Preferred Stock shall be equal to the Original Issue Price for the Series F Preferred Stock, the initial Conversion Price for the Series G Preferred Stock shall be equal to the Original Issue Price for the Series G Preferred Stock and the initial Conversion Price for the Series H Preferred Stock shall be equal to the Original Issue Price for the Series H Preferred Stock; provided, however that each such Conversion Price shall be subject to adjustment from time to time as provided below and to the extent necessary to reflect any applicable Preferred Stock Event (such price, as adjusted from time to time for each series, the “Conversion Price”).

5.4 Adjustment Upon Common Stock Event. Upon the happening of any Common Stock Event (as defined below) after the Filing Date, each Conversion Price shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying such Conversion Price in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock and Nonvoting Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock and Nonvoting Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price. Each Conversion Price shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term “Common Stock Event” shall mean (i) the issuance by the Company of additional shares of Common Stock or Nonvoting Common Stock as a dividend or other distribution on outstanding Common Stock or Nonvoting Common Stock, as applicable, (ii) a subdivision of the outstanding shares of Common Stock or Nonvoting Common Stock into a greater number of shares of Common Stock or Nonvoting Common Stock, as applicable, or (iii) a combination of the outstanding shares of Common Stock or Nonvoting Common Stock into a smaller number of shares of Common Stock or Nonvoting Common Stock, as applicable.

5.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Filing Date the Company pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Company other than shares of Common Stock, then in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, and subject to Article VI, Section 2.2, the amount of securities of the Company which they would have received had their Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of Preferred Stock or with respect to such other securities by their terms (with the Series E-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series F Conversion Rate).


5.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Filing Date the Common Stock issuable upon the conversion of the Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification, exchange or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, or consolidation provided for elsewhere in this Section 5), then in any such event each holder of Preferred Stock shall have the right thereafter to convert such Preferred Stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, exchange or other change by holders of the number of shares of Common Stock into which such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification, exchange or other change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof (with the Series E-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series F Conversion Rate).

5.7 Reorganizations, Mergers and Consolidations. If at any time or from time to time after the Filing Date there is a reorganization of the Company (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5) or a merger or consolidation of the Company with or into another entity (except a Sale of the Company which is governed by Section 3), then, as a part of such reorganization, merger or consolidation, provision shall be made so that the holders of Preferred Stock thereafter shall be entitled to receive, upon conversion of the Preferred Stock, the number of shares of stock or other securities or property (subject to Article VI, Section 2.2) of the Company, or of such successor entity resulting from such reorganization, merger or consolidation, to which a holder of Common Stock deliverable upon conversion would have been entitled on such reorganization, merger or consolidation (with the Series E-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series F Conversion Rate). In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of Preferred Stock after the reorganization, merger or consolidation to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and number of shares issuable upon conversion of the Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This Section 5.7 shall similarly apply to successive reorganizations, mergers and consolidations.

5.8 Price-Based Anti-Dilution Protection for the Preferred Stock.

(a) Adjustment Formula. If at any time after the Filing Date the Company issues or sells, or is deemed by the provisions of this Section 5.8 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), otherwise than in connection with a Common Stock Event as provided in Section 5.4, a dividend or distribution as provided in Section 5.5 or a recapitalization or other change or transaction as provided in Sections 5.6 or 5.7 for an Effective Price (as hereinafter defined) that is less than a Conversion Price in effect immediately prior to such issue or sale, then, and in each such case, such Conversion Price shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction:


(A) The numerator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Common Stock plus (y) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price in effect immediately prior to such issue or sale; and

(B) The denominator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding immediately prior to such issue or sale plus (y) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold).

(b) Certain Definitions. For the purpose of making any adjustment required under this Section 5.8:

(i) “Additional Shares of Common Stock” shall mean all shares of Common Stock or Nonvoting Common Stock issued, or deemed by the provisions of this Section 5.8 to be issued, by the Company, whether or not subsequently reacquired or retired by the Company, other than:

(a) shares of Common Stock issued or deemed issued to employees, officers, directors, contractors, consultants or advisers to the Company or any Subsidiary pursuant to incentive agreements, stock purchase or stock option plans, stock bonuses or awards, warrants, contracts or other incentive arrangements that are approved by the Board;

(b) shares of Common Stock and/or Nonvoting Common Stock issued or deemed issued (i) in connection with joint ventures, manufacturing, marketing, distribution, licensing or other commercial arrangements with the Company that in each case are approved by the Board including at least three (3) of the Preferred Stock Directors, and entered into primarily for other than capital raising purposes or (ii) to parties that are providing the Company with equipment leases, real property leases, loans, credit lines, or guaranties of indebtedness, in each case pursuant to arrangements that are approved by the Board (including at least three (3) of the Preferred Stock Directors) and that are primarily for other than equity financing purposes;

(c) shares of Common Stock issued or deemed issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity, in each case pursuant to arrangements that are approved by the Board;


(d) shares of Common Stock or Nonvoting Common Stock issued or deemed issued pursuant to the conversion or exercise of convertible or exercisable securities outstanding on the Filing Date or shares of Series H Preferred Stock or pursuant to any warrant issued pursuant to that certain warrant issuance agreement entered into on June 21, 2017 by the Company in connection with the Series G Preferred Stock Purchase Agreement dated June 21, 2017 (as the same may be amended from time to time) (the “2017 Warrant Agreement”);

(e) shares of Series H Preferred Stock;

(f) shares of Common Stock issued or deemed issued pursuant to Section 5.8(c) as a result of a decrease in a Conversion Price resulting from the operation of this Section 5.8; and

(g) shares of Common Stock issued or deemed issued pursuant to a transaction described in Section 5.4, 5.5, 5.6 or 5.7 hereof.

(ii) The “Aggregate Consideration Received” by the Company for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options.

(iii) “Common Stock Equivalents Outstanding” shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock and Nonvoting Common Stock of the Company that are outstanding at the time in question, plus (B) all shares of Common Stock of the Company issuable upon conversion of all shares of Preferred Stock (with the Series E-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being then convertible (without actual conversion) into Common Stock at the Series F Conversion Rate) or other Convertible Securities that are outstanding at the time in question, plus (C) all shares of Common Stock and Nonvoting Common Stock of the Company that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Common Stock or Nonvoting Common Stock, as applicable, of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock or Nonvoting Common Stock, as applicable.


(iv) “Convertible Securities” shall mean stock or other securities convertible into or exchangeable for shares of Common Stock or Nonvoting Common Stock.

(v) The “Effective Price” of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Company under this Section 5.8, into the Aggregate Consideration Received, or deemed to have been received, by the Company under this Section 5.8, for the issue of such Additional Shares of Common Stock.

(vi) “Rights or Options” shall mean warrants, options or other rights to purchase or acquire shares of Common Stock, Nonvoting Common Stock or Convertible Securities.

(c) Deemed Issuances. For the purpose of making any adjustment to a Conversion Price required under this Section 5.8, if the Company issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock or Nonvoting Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than a Conversion Price then in effect, then the Company shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock or Nonvoting Common Stock, as applicable, issuable upon exercise, conversion or exchange of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that:

(i) if the minimum amount of consideration payable to the Company upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and

(ii) if the minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities.


No further adjustment of a Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock or Nonvoting Common Stock, as applicable, on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock or Nonvoting Common Stock so issued were the shares of Common Stock or Nonvoting Common Stock, if any, that were actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock or Nonvoting Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock.

5.9 Certificate of Adjustment. In each case of an adjustment or readjustment of a Conversion Price, the Company, at its expense, shall cause its Chief Financial Officer or other duly authorized officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of each applicable series of Preferred Stock at the holder’s address as shown in the Company’s books.

5.10 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock’s fair market value as determined in good faith by the Board as of the date of conversion. All shares of Preferred Stock to be converted by a holder of such Preferred Stock on any date shall be aggregated for purposes of determining whether any fractional shares are to be issued.

5.11 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock and Nonvoting Common Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock and Nonvoting Common Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock and Nonvoting Common Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.


5.12 Notices. Any notice required by the provisions of this Amended and Restated Certificate of Incorporation to be given to the holders of shares of the Preferred Stock shall be deemed given upon the earlier of (i) actual receipt (whether by physical delivery or facsimile transmission), (ii) one (1) business day after deposit with a nationally recognized express courier (delivery fees prepaid) for deliveries within the United States (with instructions to deliver such notice on an expedited basis), (iii) three (3) business days after deposit with an internationally recognized express courier service (delivery fees prepaid) for deliveries across international borders (with instructions to deliver such notice on an expedited basis); or (iv) for deliveries inside the United States only, three (3) calendar days after deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Company.

5.13 Waiver of Adjustment to Conversion Price. Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of the Preferred Stock may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of a majority of the outstanding shares of such series of Preferred Stock voting as separate series (with the Series E-1 Preferred Stock and Series F-1 Preferred Stock not subject to the Regulatory Voting Requirement for purposes of this specific consent or vote); provided, however, no such waiver shall be effective against the Series D Preferred Stock without the consent or vote of the holders of at least sixty percent (60%) of the outstanding Series D Preferred Stock. Any such waiver shall bind all future holders of shares of the applicable series of Preferred Stock.

6. CONVERSION RIGHTS OF THE NONVOTING COMMON STOCK. Any holder of shares of Nonvoting Common Stock may transfer shares of Nonvoting Common Stock to a Permitted BHCA Transferee (as defined below), and any shares of Nonvoting Common Stock transferred to a Permitted BHCA Transferee shall be convertible into an equal number of shares of Common Stock at the election of the Permitted BHCA Transferee. Shares of Nonvoting Common Stock held by a BHCA Holder are not convertible into Common Stock other than in connection with a Permitted BHCA Transfer. Each Permitted BHCA Transferee who elects to convert shares of Nonvoting Common Stock into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Nonvoting Common Stock being converted. Thereupon the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Nonvoting Common Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. If the conversion is in connection with an IPO, the conversion may, at the option of any Permitted BHCA Transferee, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the


Nonvoting Common Stock shall not be deemed to have converted such Nonvoting Common Stock until immediately prior to the closing of such sale of securities. A “Permitted BHCA Transferee” shall mean a person or entity who acquires shares of BHCA Stock from a BHCA Holder in any of the following transfers (each a “Permitted BHCA Transfer”) that has been identified as a “Permitted BHCA Transfer” hereunder in a writing delivered to the Company by the BHCA Holder making the transfer: (i) a widespread public distribution; (ii) private placement in which no one party acquires the right to purchase 2% or more of any class of voting securities (as such term is used for purposes of the BHCA), of the Company; (iii) an assignment to a single party (e.g., a broker or investment banker) for the purpose of conducting a widespread public distribution on behalf of a BHCA Holder; or (iv) to a party who would control more than 50% of the voting securities (as such term is used for purposes of the BHCA) of the Company without giving effect to the BHCA Stock transferred by a BHCA Holder.

7. PROTECTIVE PROVISIONS.

(a) Preferred Stock Protective Provisions. Subject to the Regulatory Voting Restriction, for so long as at least One Million Five Hundred Thousand (1,500,000) shares of Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of the holders of a majority of the Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series E Conversion Rate and the Series F-1 Preferred Stock treated as being convertible (without actual conversion) into shares of Common Stock at the Series F Conversion Rate):

(i) alter, change or repeal any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise);

(ii) alter, waive or change the rights, preferences or privileges of the Preferred Stock;

(iii) authorize (whether by reclassification or otherwise), or obligate itself to issue, shares of any class or series of stock (including any other security convertible into or exercisable for any such shares) having rights, preferences or privileges senior to or on a parity with any series of the Preferred Stock as to dividend rights, redemption, liquidation, voting or other rights;

(iv) redeem or repurchase (other than Permitted Repurchases or pursuant to Article VI) any shares of Common Stock, Nonvoting Common Stock or Preferred Stock;

(v) declare or pay any dividends on, or declare or make any other distribution (other than Permitted Repurchases or pursuant to Article VI) directly or indirectly, on account of any shares of Common Stock, Nonvoting Common Stock or Preferred Stock;


(vi) consummate any Sale of the Company;

(vii) change the number of directors authorized to serve on the Board;

(viii) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Common Stock, Nonvoting Common Stock or Preferred Stock (or any series thereof) of the Company or any authorized shares or interests of its subsidiaries, but in each case, not below the number of shares thereof then outstanding; or

(ix) increase the number of shares authorized under any Company equity incentive plan or create any new equity incentive plan.

(b) Series D Preferred Stock Protective Provisions. For so long as at least One Million Five Hundred Thousand (1,500,000) shares of Series D Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of the holders of at least sixty percent (60%) of the Series D Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis:

(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise) so as to adversely alter or change the powers, preferences or special rights of the shares of the Series D Preferred Stock in a manner that shall not so affect the entire class;

(ii) increase the total number of authorized shares of Series D Preferred Stock; or

(iii) redeem or repurchase any shares of Series D Preferred Stock in which the Company does not offer to repurchase from each holder of Series D Preferred Stock such holders’ pro-rata portion (calculated on an as converted to Common Stock basis) of the aggregate shares of stock being redeemed or repurchased by the Company.

(c) Series E Preferred Stock Protective Provisions. For so long as at least One Million Five Hundred Thousand (1,500,000) shares of Series E Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of holders of at least sixty percent (60%) of the Series E Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis:


(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise) so as to adversely alter or change the powers, preferences or special rights of the shares of the Series E Preferred Stock in a manner that shall not so affect the entire class;

(ii) reduce the Original Issue Price of the Series E Preferred Stock, or adversely amend or waive the express rights of the Series E Preferred Stock set forth in Section 3.1 or Section 5.2(a)(i);

(iii) increase or decrease the total number of authorized shares of Series E Preferred Stock; or

(iv) redeem or repurchase any shares of Series E Preferred Stock in which the Company does not offer to repurchase from each holder of Series E Preferred Stock such holders’ pro-rata portion (calculated on an as converted to Common Stock basis) of the aggregate shares of stock being redeemed or repurchased by the Company.

(d) Series E-1 Preferred Stock Protective Provisions. For so long as any shares of Series E-1 Preferred Stock remain outstanding, the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of holders of at least sixty percent (60%) of the Series E-1 Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis (with the Series E-1 Preferred Stock treated as being convertible (without actual conversion) at the Series E Conversion Rate and with the Series E-1 Preferred Stock not subject to the Regulatory Voting Restriction for purposes of such vote or written consent):

(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation so as to adversely alter or change the powers, preferences or special rights of the Series E-1 Preferred Stock set forth in this Amended and Restated Certificate of Incorporation in a manner that shall not so affect the entire class;

(ii) reclassify, convert (except as expressly provided for in this Amended and Restated Certificate of Incorporation) or exchange the Series E-1 Preferred Stock for any other security other than at the closing of a Sale of the Company in which the proceeds of such Sale of the Company are distributed to stockholders in accordance with the terms and conditions of Section 3;

(iii) increase or decrease the total number of authorized shares of Series E-1 Preferred Stock; or


(iv) amend, modify or waive any of the terms set forth in Article VI below or Sections 4.3(b), 5.1(c), 5.2(b), the proviso at the end of the first sentence of Section 5.2(a), this Section 7(d) or any other express reference in this Amended and Restated Certificate of Incorporation to any shares of Series E-1 Preferred Stock.

In no event shall the Series E-1 Preferred Stock be entitled to vote, or act by written consent, on any matter as a single “class” of “voting securities” as such terms are interpreted under the BHCA. For the avoidance of doubt, the foregoing provisions in this Section 7(d) shall continue to apply with respect to the Series E-1 Preferred Stock after a Deemed Optional Conversion or Deemed Automatic Conversion.

(e) Series F Preferred Stock Protective Provisions. For so long as at least One Million Five Hundred Thousand (1,500,000) shares of Series F Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of holders of at least sixty percent (60%) of the Series F Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis:

(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise) so as to adversely alter or change the powers, preferences or special rights of the shares of the Series F Preferred Stock in a manner that shall not so affect the entire class;

(ii) reduce the Original Issue Price of the Series F Preferred Stock; directly or indirectly reduce or eliminate the liquidation preference of the Series F Preferred Stock as expressly set forth in Section 3.1; adversely amend, alter or waive the express rights of the Series F Preferred Stock set forth in Section 5.2(a)(i); or amend this Section 7(e);

(iii) increase or decrease the total number of authorized shares of Series F Preferred Stock; or

(iv) redeem or repurchase any shares of Series F Preferred Stock in which the Company does not offer to repurchase from each holder of Series F Preferred Stock such holder’s pro rata portion (calculated on an as-converted to Common Stock basis) of the aggregate shares of stock being redeemed or repurchased by the Company.

(f) Series F-1 Preferred Stock Protective Provisions. For so long as any shares of Series F-1 Preferred Stock remain outstanding, the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of holders of at least sixty percent (60%) of the Series F-1 Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis (with the Series F-1 Preferred Stock treated as being convertible (without actual conversion) at the Series F Conversion Rate and with the Series F-1 Preferred Stock not subject to the Regulatory Voting Restriction for purposes of such vote or written consent):


(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation so as to adversely alter or change the powers, preferences or special rights of the Series F-1 Preferred Stock set forth in this Amended and Restated Certificate of Incorporation in a manner that shall not so affect the entire class;

(ii) reclassify, convert (except as expressly provided for in this Amended and Restated Certificate of Incorporation) or exchange the Series F-1 Preferred for any other security other than at the closing of a Sale of the Company in which the proceeds of such Sale of the Company are distributed to stockholders in accordance with the terms and conditions of Section 3;

(iii) increase or decrease the total number of authorized shares of Series F-1 Preferred Stock; or

(iv) amend, modify or waive any of the terms set forth in Article VI below or Sections 4.3(b), 5.1(c), 5.2(b), the proviso at the end of the first sentence of Section 5.2(a), this Section 7(f) or any other express reference in this Amended and Restated Certificate of Incorporation to any shares of Series F-1 Preferred Stock.

In no event shall the Series F-1 Preferred Stock be entitled to vote, or act by written consent, on any matter as a single “class” of “voting securities” as such terms are interpreted under the BHCA. For the avoidance of doubt, the foregoing provisions in this Section 7(f) shall continue to apply with respect to the Series F-1 Preferred Stock after a Deemed Optional Conversion or Deemed Automatic Conversion.

(g) Series G Preferred Stock Protective Provisions. For so long as at least One Million Five Hundred Thousand (1,500,000) shares of Series G Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of the holders of at least sixty percent (60%) of the Series G Preferred Stock then outstanding, voting together as a single class on an as converted to Common Stock basis:

(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise) so as to adversely alter or change the powers, preferences or special rights of the shares of the Series G Preferred Stock in a manner that shall not so affect the entire class;

(ii) reduce the Original Issue Price of the Series G Preferred Stock; directly or indirectly reduce or eliminate the liquidation preference of the Series G Preferred Stock as expressly set forth in Section 3.1; adversely amend, alter or waive the express rights of the Series G Preferred Stock set forth in Section 5.2(a)(i); or amend this Section 7(g);


(iii) increase or decrease the total number of authorized shares of Series G Preferred Stock; or

(iv) redeem or repurchase any shares of Series G Preferred Stock in which the Company does not offer to repurchase from each holder of Series G Preferred Stock such holder’s pro-rata portion (calculated on an as converted to Common Stock basis) of the aggregate shares of stock being redeemed or repurchased by the Company.

(h) Series H Preferred Stock Protective Provisions. For so long as at least One Million Five Hundred Thousand (1,500,000) shares of Series H Preferred Stock remain outstanding (as adjusted to the extent necessary to reflect any Preferred Stock Event), the Company shall not (by amendment of this Amended and Restated Certificate of Incorporation, merger, consolidation, reorganization or otherwise), without the approval, by vote or written consent, of the holders of at least sixty percent (60%) of the Series H Preferred Stock then outstanding, voting together on an as converted to Common Stock basis:

(i) amend or waive any provision of this Amended and Restated Certificate of Incorporation or the Company’s Bylaws (including, without limitation, by way of merger, consolidation or otherwise) so as to adversely alter or change the powers, preferences or special rights of the shares of the Series H Preferred Stock in a manner that shall not so affect the entire class of Preferred Stock;

(ii) reduce the Original Issue Price of the Series H Preferred Stock; directly or indirectly reduce or eliminate the liquidation preference of the Series H Preferred Stock as expressly set forth in Section 3.1; adversely amend, alter or waive the express rights of the Series H Preferred Stock set forth in Section 5.2(a)(i); or amend this Section 7(h);

(iii) increase or decrease the total number of authorized shares of Series H Preferred Stock; or

(iv) redeem or repurchase any shares of Series H Preferred Stock in which the Company does not offer to repurchase from each holder of Series H Preferred Stock such holder’s pro-rata portion (calculated on an as converted to Common Stock basis) of the aggregate shares of stock being redeemed or repurchased by the Company.

8. REDEMPTION. Except as otherwise provided in Article VI, the Preferred Stock is not redeemable at the option of the holder thereof.

9. MISCELLANEOUS.

9.1 No Reissuance of Preferred Stock. No share or shares of Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue.


9.2 Consent to Certain Transactions. Each holder of shares of Preferred Stock shall, by virtue of its acceptance of a stock certificate evidencing Preferred Stock, be deemed to have consented, for purposes of Sections 502 and 503 of the California Corporations Code, to all Permitted Repurchases.

ARTICLE VI

1. DEFINITIONS. As used herein, the following terms will have the meanings set forth below:

1.1 “Regulated Holder” means a bank holding company subject to the provisions of the Bank Holding Company Act of 1956, as amended, and as implemented by the Board of Governors of the Federal Reserve System, whether pursuant to regulation or interpretation (the “BHCA”), together with its affiliates (as defined in Regulation Y (12 C.F.R. Part 225)) that holds any shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock issued by the Company pursuant to that certain Series E-1 Preferred Stock Purchase Agreement, dated November 8, 2013, by and between the Company and the “Investors” thereunder, that certain Series F-1 Preferred Stock Purchase Agreement, dated February 12, 2015, by and between the Company and the “Investors” thereunder, respectively, or any shares of capital stock of the Company issued as a dividend or distribution upon, in exchange for, or upon any conversion of, such shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock (collectively, Article VI Stock).

1.2 A “Transferee” means a party to whom a Regulated Holder transfers shares of Article VI Stock and the transferees of such party (in each case, other than Permitted Regulatory Transferees).

1.3 A “Permitted Regulatory Transferee” shall mean a person or entity who acquires shares of Article VI Stock from a Regulated Holder or its Transferees in any of the following transfers (each a “Permitted Regulatory Transfer”) that has been identified as a “Permitted Regulatory Transfer” hereunder in a writing delivered to the Company by the Regulated Holder or Transferees making the transfer:

(a) a widespread public distribution;

(b) private placement in which no one party acquires the right to purchase 2% or more of any class of voting securities (as such term is used for purposes of the BHCA), of the Company;

(c) an assignment to a single party (e.g., a broker or investment banker) for the purpose of conducting a widespread public distribution on behalf of a Regulated Holder and its Transferees; or


(d) to a party who would control more than 50% of the voting securities (as such term is used for purposes of the BHCA) of the Company without giving effect to the shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock transferred by a Regulated Holder and its Transferees.

2. The Company shall be bound by the following restrictions (each, a “BHCA Regulatory Restriction”):

2.1 The Company shall not directly or indirectly, repurchase, redeem, retire or otherwise acquire any of the Company’s capital securities, or take any other action, if, as a result, a Regulated Holder and its Transferees would own or control, or be deemed to own or control, collectively, greater than (i) 4.99% of the voting power of any class of voting securities of the Company or (ii) 9.99% of the total equity of the Company (in each case, as such terms used in the preceding sentence are defined and used, and as such percentages are calculated, under the BHCA).

2.2 In the event of any distribution by the Company to its stockholders, Sale of the Company, or other transaction for which provision is made in Sections 5.4, 5.5, 5.6 or 5.7 of Article V in which any voting securities or other equity securities of the Company (as defined and used under the BHCA) are payable to a Regulated Holder or its Transferees where, as result of such transaction, a Regulated Holder and its Transferees would own or control, or be deemed to own or control, collectively, greater than (i) 4.99% of the voting power of any class of voting securities of the Company or (ii) 9.99% of the total equity of the Company (in each case, as such terms are defined and used, and as such percentages are calculated, under the BHCA), then each such Regulated Holder and its Transferees shall be entitled to receive, at its election, in lieu of its pro rata share (based on its percentage of the aggregate voting securities or equity securities, as applicable, held by such Regulated Holder and its Transferees) of such voting securities or other equity securities, as applicable, that would cause the foregoing percentage thresholds to be exceeded (as to each, its “Excess Shares”), a cash payment equal to the fair market value of such Excess Shares as reasonably determined by the Board in good faith. In the event of any distribution by the Company to its stockholders, Sale of the Company, or other transaction for which provision is made in Sections 5.4, 5.5, 5.6 or 5.7 of Article V in which any form of property other than in cash, voting securities, or other equity securities of the Company is payable to a Regulated Holder or its Transferees and counsel for such Regulated Holder or its Transferees advises it in writing that such holder is prohibited from holding such property under the BHCA, then such Regulated Holder or its Transferees, as applicable, shall be entitled to receive, at its election, in lieu of such property, a cash payment equal to the fair market value of the property that such holder would have been entitled to receive upon such distribution or other transaction as reasonably determined by the Board in good faith.

3. In the event of a breach of any BHCA Regulatory Restriction or Section 4 of this Article VI or if a Regulated Holder is unable to transfer pursuant to Section 4 of this Article VI all or any part of the shares of the Company’s stock then-held by it because such transfer is not permitted pursuant to applicable securities laws, a Regulated Holder may, subject to applicable law regarding dividends, distributions or redemptions, exercise any remedies available to it against the Company, including requiring the Company to repurchase the relevant portion of the shares held by such Regulated Holder necessary to give effect to Sections 2 or 4, as applicable, at a per share price equal to the then current fair market value of: (a) with respect to the shares of Series


E-1 Preferred Stock, (i) if shares of Series E Preferred Stock are then outstanding, a share of Series E Preferred Stock (and not the fair market value of a share of Series E-1 Preferred Stock), as reasonably determined by the Board in good faith, or (ii) if no shares of Series E Preferred Stock are then outstanding, a share of Series E-1 Preferred Stock as reasonably determined by the Board in good faith with such determination being made assuming that the rights, preferences and privileges applicable to the Series E Preferred Stock (and not the Series E-1 Preferred Stock) that are set forth herein, as in effect as of the Filing Date, are the rights, preferences and privileges of the Series E-1 Preferred Stock and (b) with respect to the shares of Series F-1 Preferred Stock, (i) if shares of Series F Preferred Stock are then outstanding, a share of Series F Preferred Stock (and not the fair market value of a share of Series F-1 Preferred Stock), as reasonably determined by the Board in good faith, or (ii) if no shares of Series F Preferred Stock are then outstanding, a share of Series F-1 Preferred Stock as reasonably determined by the Board in good faith with such determination being made assuming that the rights, preferences and privileges applicable to the Series F Preferred Stock (and not the Series F-1 Preferred Stock) that are set forth herein, as in effect as of the Filing Date, are the rights, preferences and privileges of the Series F-1 Preferred Stock. The Company shall, subject to applicable law regarding dividends, distributions or redemptions, effect such repurchase within thirty (30) days following written notice to the Company by such Regulated Holder requiring such repurchase.

4. If (w) a Regulated Holder is deemed to be in control of the Company (as “control” is used for purposes of the BHCA), (x) a Regulated Holder believes in good faith, based upon the advice of its legal counsel that it is reasonably likely that it is, or would be deemed to be in control of the Company (as “control” is used for purposes of the BHCA) or that it is not permitted to hold all or part of its shares of the Company’s stock or, if applicable, its other securities of the Company under the relevant banking laws, regulations and agency interpretations and guidance, (y) all of the shares of Series E Preferred Stock and/or Series F Preferred Stock, as applicable, have been converted into Common Stock pursuant to this Amended and Restated Certificate of Incorporation and the Investors (as defined in that certain Tenth Amended and Restated Investors’ Rights Agreement, dated on or around the Filing Date (the “Rights Agreement”)), other than such Regulated Holder, collectively hold less than 75% of the Registrable Securities (as defined in the Rights Agreement) that such Investors held on the effective date of the Rights Agreement (as adjusted for any stock splits or combinations, stock dividends, reclassifications, exchanges, recapitalizations or the like), or (z) the Regulated Holder learns of any activities directly or indirectly by or on behalf of the Company, its affiliates or any of their respective officers, directors or employees, or anyone for whose acts or defaults any of the foregoing may be liable, that would reasonably be expected to constitute or give rise to a violation of applicable anti-bribery or anti-corruption laws by the Company, then (i) the Company will cooperate in good faith to provide the Regulated Holder with information relevant to its determination under clause (w), (x), (y) or (z), (ii) subject to the transferee agreeing in writing reasonably satisfactory to the Company to be bound with respect to such shares by all agreements between the Company and the Registered Holder, the Regulated Holder shall be permitted to sell or otherwise transfer its shares of Series E-1 Preferred Stock and/or Series F-1 Preferred Stock or any other securities of the Company then-held by the Regulated Holder (subject to applicable securities laws) and (iii) the Company will use its commercially reasonable efforts to facilitate such sale or transfer in good faith (which shall include, without limitation, making management available to prospective buyers and providing customary due diligence material, subject to a customary confidentiality agreement).


5. To the extent further required, the Company will (i) cooperate in good faith with a Regulated Holder in order to avoid a Regulated Holder being deemed to control the Company or any successor or acquiring corporation or entity (as “control” is used for purposes of the BHCA) as a result of any arrangements with any Regulated Holder (ii) to avoid any circumstances under which the Regulated Holder would not be permitted to hold all or a portion of its shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock, any shares of capital stock of the Company issuable upon conversion thereof, or any security of (w) the Company, (x) any successor thereto, (y) any acquiring corporation or (z) any entity the securities of which have been issued in respect of or exchange for any such shares of Series E-1 Preferred Stock or Series F-1 Preferred Stock or such capital stock, then-held by Regulated Holder, under the relevant banking laws, regulations and agency interpretations and guidance and (iii) take commercially reasonable efforts to provide that any security of the Company or of any successor or acquiring corporation or entity issued to a Regulated Holder in any transaction to which the Company is a party contains terms and characteristics that provide comparable assurance of compliance with any regulatory requirements applicable to the Regulated Holder as are provided by the Series E-1 Preferred Stock or Series F-1 Preferred Stock.

6. In the event of any conflict with any provision of this Amended and Restated Certificate of Incorporation, the terms of this Article VI shall prevail.

7. Notwithstanding anything to the contrary with in this Amended and Restated Certificate of Incorporation, any of the provisions of this Article VI (other than Section 1), and Sections 7(d) and 7(f) of Article V may be waived, either prospectively or retroactively, with the written consent of the Regulated Holders and Transferees then holding a majority of the shares of capital stock of the Company then held by all Regulated Holders and Transferees (calculated on an as-converted to Common Stock basis (with the Series E-1 Preferred Stock and Series F-1 Preferred Stock treated as being convertible (without actual conversion))).

8. Notwithstanding anything to the contrary in this Amended and Restated Certificate of Incorporation, this Article VI shall automatically terminate and be of no further force or effect at such time that no shares of the Company’s capital stock are held by any Regulated Holder or Transferee.

ARTICLE VII

The Board shall have the power to adopt, amend or repeal the Company’s Bylaws.

ARTICLE VIII

Election of directors need not be by written ballot unless the Company’s Bylaws shall so provide.

ARTICLE IX

To the fullest extent permitted by law, no director of the Company 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 Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article IX, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Company existing at the time of such amendment, repeal or adoption of such an inconsistent provision.

To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) agents of the Company (and any other persons to which Delaware General Corporation Law permits the Company to provide indemnification) through the Company’s Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to the Company, its stockholders, and others.

Any amendment, repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection of a director, officer, agent, or other person existing at the time of, or increase the liability of any director of the Company with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification.


STATE OF DELAWARE

CERTIFICATE OF AMENDMENT

OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF BDC PAYMENTS HOLDINGS, INC.

The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

FlRST: That at a meeting of the Board of Directors of BDC Payments Holdings, Inc. held June 27, 2019, resolutions were duly adopted setting forth a proposed amendment of the Amended and Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that Article 1 of the Amended and Restated Certificate of Incorporation be amended and replaced in its entirety to read as follows:

Article 1

The name of the corporation is Bill.com Holdings, Inc.

SECOND: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 27th day of June, 2019.
        By:  

/s/ John Rettig

  John Rettig, Chief Financial Officer


CERTIFICATE OF AMENDMENT

OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BILL.COM HOLDINGS, INC.

Bill.com Holdings, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”), does hereby certify that the following amendment to the Corporation’s Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State on December 21, 2018 (the “Certificate of Incorporation”), has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law, with the approval of such amendment by the Corporation’s stockholders having been given by written consent without a meeting in accordance with Sections 228 and 242 of the General Corporation Law:

The following two paragraphs are hereby added to precede the first paragraph of Article IV of the Certificate of Incorporation (“Authorized Stock”):

“Contingent and effective upon the filing of this Certificate of Amendment of Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”), every two outstanding shares of Common Stock and Preferred Stock will be combined into and automatically, without any further action by the Corporation or the stockholders thereof, become one outstanding share of Common Stock and Preferred Stock, respectively, of the Corporation (the “Reverse Stock Split”). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Split. The Corporation will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors of the Corporation when those entitled to receive such fractional shares are determined.

The Reverse Stock Split shall occur automatically without any further action by the holders of Common Stock or Preferred Stock, and whether or not the certificates representing such shares have been surrendered to the Corporation; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or Preferred Stock issuable as a result of the Reverse Stock Split unless the existing certificates evidencing the applicable shares of stock prior to the Reverse Stock Split are either delivered to the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed, and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.”

The foregoing amendment to the Certificate of Incorporation has been duly approved by the Corporation’s Board of Directors in accordance with Sections 141 and 242 of the DGCL.

The foregoing amendment to the Certificate of Incorporation has been duly approved by the Corporation’s stockholders in accordance with Sections 228 and 242 of the DGCL.

This Certificate of Amendment shall be effective upon filing with the Delaware Secretary of State.

[SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 26th day of November, 2019 and the foregoing facts stated herein are true and correct.

 

BILL.COM HOLDINGS, INC.
By:   /s/ René Lacerte
René Lacerte, President and CEO

Exhibit 4.1

 

LOGO

ZQ|CERT#|COY|CLS|RGSTRY|ACCT#| TRANSTYPE|RUN#|TRANS# COMMON STOCK COMMON STOCK PO PAR VALUE $0.00001 MR ADD ADD ADD ADD 4 3 2 1 A BOX DESIGNATION SAMPLE Certificate Shares 505006, Number * * 000000 ****************** (IF * * * 000000 *** ANY) ZQ00000000 **** 000000 **** Louisville, BILL.COM HOLDINGS, INC. ***** 000000 ** KY ****** 000000 *** INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE ** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample SEE REVERSE FOR CERTAIN DEFINITIONS 40233 **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David - THIS CERTIFIES THAT Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. MR. Alexander David SAMPLE Sample **** Mr. Alexander David &Sample MRS. **** Mr. Alexander SAMPLE David Sample **** Mr. Alexander & David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr Alexander David Sample **** Mr. Alexander David Sample **** CUSIP 090043 10 0 5006 Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander MR. David Sample SAMPLE **** Mr. Alexander David Sample **** &Mr. Alexander MRS. David Sample SAMPLE **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample is the owner of **000000 **Shares**** 000000**Shares****000000** Shares**** 000000** Shares**** 000000**Shares**** 000000**Shares**** 000000**Shares**** 000000**Shares*** *000000**Shares**** 000000** Shares****000000**Shares**** 000000**Shares**** 000000**Shares**** 000000** Shares**** 000000**Shares****000000** Shares**** 000000** Shares****000000**Shares**** 000000**Shares**** 000000** Shares**** 000000**Shares**** 000000**Shares**** 000000** Shares****000000** Shares**** 0 THIS CERTIFICATE IS TRANSFERABLE IN 00000** Shares****000000**Shares**** 000000** Shares**** 000000** Shares**** 000000**Shares**** 000000**Shares**** 000000** Shares**** 000000**Shares****00 *** ZERO HUNDRED THOUSAND 0000**Shares****000000** Shares****000000**Shares**** 000000** Shares**** 000000** Shares**** 000000** Shares**** 000000** Shares****000000**Shares**** 000 CITIES DESIGNATED BY THE TRANSFER 000** Shares**** 000000**Shares**** 000000**Shares****000000**Shares****000000** Shares**** 000000** Shares**** 000000**Shares**** 000000** Shares**** 0000 AGENT, AVAILABLE ONLINE AT 00**Shares**** 000000**Shares**** 000000**Shares**** 000000** Shares****000000** Shares**** 000000**Shares**** 000000** Shares**** 000000**Shares**** 00000 0** Shares**** 000000**Shares**** 000000**Shares**** 000000**Shares****000000** Shares**** 000000** Shares**** 000000** Shares****000000**Shares****000000 ZERO HUNDRED AND ZERO*** www.computershare.com ** Shares**** 000000** Shares**** 000000**Shares****000000**Shares**** 000000**Shares**** 000000**Shares**** 000000**Shares**** 000000**Shares**** 000000* *Shares****000000** Shares**** 000000**Shares**** 000000** Shares**** 000000** Shares **** 000000** Shares**** 000000** Shares**** 000000**Shares**** 000000** Shares**** 000000** Shares**** 000000** Shares****000000**Shares**** 000000** Shares**** 000000**Shares****000000**Shares**** 000000**Shares****000000**S FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Bill.com Holdings, Inc. (hereinafter called the “Company”), transferable on the books of the Company in Total DTC person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and Holder the shares represented hereby, are issued and shall be held subject to all of the provisions of the Certificate of Number Certificateof Insurance ID Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Value Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Transaction Shares CUSIP/IDENTIFIER Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Numbers 1234567890/1234567890 1234567890/1234567890 1234567890 / 1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. DATED DD-MMM-YYYY HOLDI COUNTERSIGNED AND REGISTERED: FACSIMILE SIGNATURE TO COME M NG O POR R A S COMPUTERSHARE TRUST COMPANY, N.A. Num/No 12345678901234512345678 . C CO TE , L I Denom. CEO L N TRANSFER AGENT AND REGISTRAR, I C 666 555 444 333 222 111 B . XXXXXX August 2, 2018 Total. DEL RE FACSIMILE SIGNATURE TO COME AWA 7 00.1,000,000 XX 123456 XXXXXXXXXX X By Secretary AUTHORIZED SIGNATURE


LOGO

BILL.COM HOLDINGS, INC. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE CERTIFICATE OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -. Custodian (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act (State) JT TEN as joint tenants with right of survivorship UNIF TRF MIN ACT .Custodian (until age.. ) and not as tenants in common (Cust) under Uniform Transfers to Minors Act (Minor) (State) Additional abbreviations may also be used though not in the above list. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE For value received,_ hereby sell, assign and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) __ Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint __ Attorney to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. Dated: 20 Signature(s) Guaranteed: Medallion Guarantee Stamp 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. Signature: Signature: 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 whatever. The IRS requires that the named transfer agent (“we”) report the cost basis of certain shares or units acquired after January 1, 2011. If your shares or units are covered by the legislation, and you requested to sell or transfer the shares or units using a specific cost basis calculation method, then we have processed as you requested. If you did not specify a cost basis calculation method, then we have defaulted to the first in, first out (FIFO) method. Please consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with the issuer or do not have any activity in your account for the time period specified by state law, your property may become subject to state unclaimed property laws and transferred to the appropriate state.

Exhibit 5.1

 

LOGO

December 2, 2019

Bill.com Holdings, Inc.

1810 Embarcadero Road

Palo Alto, California 94303

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-1 (File Number 333-234730) (the “Registration Statement”) initially filed by Bill.com Holdings, Inc., a Delaware corporation (the “Company”), with the Securities and Exchange Commission on November 15, 2019, as subsequently amended on December 2, 2019, in connection with the registration under the Securities Act of 1933, as amended (the “Securities Act”), of an aggregate of 10,147,058 shares (the “Stock”) of the Company’s Common Stock.

In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following:

(1) The Company’s Amended and Restated Certificate of Incorporation, filed with and certified by the Delaware Secretary of State on December 21, 2018 (as amended to date, the “Restated Certificate”), and the Restated Certificate of Incorporation that the Company intends to file and that will be effective upon the consummation of the sale of the Stock (the “Post-Effective Restated Certificate”).

(2) The Company’s Bylaws, as amended to date, certified to us as of the date hereof by an officer of the Company as being complete and in full force and effect as of the date hereof (the “Bylaws”) and the Restated Bylaws that the Company has adopted in connection with, and that will be effective upon, the consummation of the sale of the Stock (the “Post-Effective Bylaws”).

(3) The Registration Statement, together with the exhibits filed as a part thereof or incorporated therein by reference.

(4) The prospectus prepared in connection with the Registration Statement (the “Prospectus”).

(5) The minutes of meetings and actions by written consent of the Company’s Board of Directors (the “Board”) and stockholders (the “Stockholders”) at which, or pursuant to which, the Restated Certificate, the Post-Effective Restated Certificate, the Bylaws and the Post-Effective Bylaws were approved.

(6) The minutes of meetings and actions by written consent of the Board and Stockholders at which, or pursuant to which the sale and issuance of the Stock and related matters were approved.

(7) The stock records of the Company that the Company has provided to us (consisting of a list of stockholders and a list of holders of outstanding stock options, warrants and any other rights to purchase capital stock, in each case, that was prepared by the Company and setting forth the number of such issued and outstanding securities).

(8) A Certificate of Good Standing issued by the Secretary of State of the State of Delaware dated December 2, 2019, stating that the Company is qualified to do business and is in good standing under the laws of the State of Delaware as of such date (the “Certificate of Good Standing”).

(9) An opinion certificate addressed to us and dated of even date herewith executed by the Company containing certain factual representations (the “Opinion Certificate”).


(12) The underwriting agreement to be entered into by and among the Company and the several underwriters named in Schedule I thereto.

In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities (other than the Company) executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us.

The Company’s capital stock is uncertificated. We assume that the issued Stock will not be reissued by the Company in uncertificated form until any previously issued stock certificate representing such issued Stock have been surrendered to the Company in accordance with Section 158 of the Delaware General Corporation Law and that the Company will properly register the transfer of the Stock to the purchasers of such Stock on the Company’s record of uncertificated securities.

We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America and the State of California and of the existing Delaware General Corporation Law and reported judicial decisions relating thereto.

With respect to our opinion expressed in paragraph (1) below as to the valid existence and good standing of the Company under the laws of the State of Delaware, we have relied solely upon the Certificate of Good Standing and representations made to us by the Company in the Opinion Certificate.

In connection with our opinion expressed in paragraph (2) below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act, that the registration will apply to such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity of the issuance of such shares of Stock.

This opinion is based upon the customary practice of lawyers who regularly give, and lawyers who regularly advise opinion recipients regarding, opinions of the kind set forth in this opinion letter, including customary practice as described in bar association reports.

Based upon the foregoing, we are of the following opinion:

(1) The Company is a corporation validly existing, in good standing, under the laws of the State of Delaware;

(2) the up to 10,147,058 shares of Stock to be issued and sold by the Company, when issued, sold and delivered in the manner and for the consideration stated in the Registration Statement and the Prospectus and in accordance with the resolutions adopted by the Board and to be adopted by the Pricing Committee of the Board, will be validly issued, fully paid and nonassessable.

We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.

This opinion is intended solely for use in connection with issuance and sale of shares of Stock subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and is based solely on our understanding of facts in existence as of such date after the aforementioned examination. In rendering the opinions above, we are opining only as to the specific legal issues expressly set forth therein, and no opinion shall be inferred as to any other matter or matters. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention whether or not such occurrence would affect or modify any of the opinions expressed herein.

 

Very truly yours,

 

/s/ Fenwick & West LLP

FENWICK & WEST LLP

Exhibit 10.4

BILL.COM HOLDINGS, INC.

2019 EQUITY INCENTIVE PLAN

1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain, and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents, Subsidiaries, and Affiliates that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards. Capitalized terms not defined elsewhere in the text are defined in Section 29.

2. SHARES SUBJECT TO THE PLAN.

2.1. Number of Shares Available. Subject to Sections 2.6 and 22 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan as of the date of adoption of the Plan by the Board, is Seven Million One Hundred Thousand (7,100,000) Shares, plus (a) any reserved Shares not issued or subject to outstanding awards granted under the Company’s 2016 Equity Incentive Plan, as amended (the “2016 Plan”) on the Effective Date (as defined below), (b) Shares that are subject to awards granted under the 2016 Plan and the Company’s 2006 Equity Incentive Plan, as amended (collectively with the 2016 Plan, the “Prior Plans”) that cease to be subject to such awards by forfeiture or otherwise after the Effective Date, (c) Shares issued under the Prior Plans before or after the Effective Date pursuant to the exercise of stock options that are, after the Effective Date, forfeited, (d) Shares issued under the Prior Plan that are repurchased by the Company at the original purchase price or are otherwise forfeited, and (e) Shares that are subject to stock options or other awards under the Prior Plans that are used to pay the exercise price of a stock option or withheld to satisfy the tax withholding obligations related to any award.

2.2. Lapsed, Returned Awards. Shares subject to Awards, and Shares issued under the Plan under any Award, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares: (a) are subject to issuance upon exercise of an Option or SAR granted under this Plan but which cease to be subject to the Option or SAR for any reason other than exercise of the Option or SAR, (b) are subject to Awards granted under this Plan that are forfeited or are repurchased by the Company at the original issue price, (c) are subject to Awards granted under this Plan that otherwise terminate without such Shares being issued or (d) are surrendered pursuant to an Exchange Program. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan. Shares used to pay the exercise price of an Award or withheld to satisfy the tax withholding obligations related to an Award will become available for grant and issuance in connection with subsequent Awards under this Plan. For the avoidance of doubt, Shares that otherwise become available for grant and issuance because of the provisions of this Section 2.2 will not include Shares subject to Awards that initially became available because of the substitution clause in Section 22.2 hereof.

2.3. Minimum Share Reserve. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all outstanding Awards granted under this Plan.

2.4. Automatic Share Reserve Increase. The number of Shares available for grant and issuance under the Plan will be increased on July 1st of each of the first ten (10) fiscal years during the term of the Plan by the lesser of (a) five percent (5%) of the number of shares of all classes of the Company’s common stock issued and outstanding on each June 30th immediately prior to the date of increase or (b) such number of Shares determined by the Board.

 

1


2.5. ISO Limitation. No more than Twenty-One Million Three Hundred Thousand (21,300,000) Shares will be issued pursuant to the exercise of ISOs granted under the Plan.

2.6. Adjustment of Shares. If the number or class of outstanding Shares is changed by a stock dividend, extraordinary dividend or distribution (whether in cash, shares, or other property, other than a regular cash dividend), recapitalization, stock split, reverse stock split, subdivision, combination, consolidation, reclassification, spin-off, or similar change in the capital structure of the Company, without consideration, then (a) the number and class of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, including Shares reserved under sub-clauses (a)-(e) of Section 2.1, (b) the Exercise Prices of and number and class of Shares subject to outstanding Options and SARs, (c) the number and class of Shares subject to other outstanding Awards and (d) the maximum number and class of Shares that may be issued as ISOs set forth in Section 2.5, will be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws, provided that fractions of a Share will not be issued.

If, by reason of an adjustment pursuant to this Section 2.6, a Participant’s Award Agreement or other agreement related to any Award, or the Shares subject to such Award, covers additional or different shares of stock or securities, then such additional or different shares, and the Award Agreement or such other agreement in respect thereof, will be subject to all of the terms, conditions, and restrictions which were applicable to the Award or the Shares subject to such Award prior to such adjustment.

3. ELIGIBILITY. ISOs may be granted only to Employees. All other Awards may be granted to Employees, Consultants, Directors, and Non-Employee Directors, provided that such Consultants, Directors, and Non-Employee Directors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction.

4. ADMINISTRATION.

4.1. Committee Composition; Authority. This Plan will be administered by the Committee or by the Board acting as the Committee. Subject to the general purposes, terms, and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan, except, however, the Board will establish the terms for the grant of an Award to Non-Employee Directors. The Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement, and any other agreement or document executed pursuant to this Plan;

(b) prescribe, amend, and rescind rules and regulations relating to this Plan or any Award;

(c) select persons to receive Awards;

(d) determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the Exercise Price, the time or times when Awards may vest and be exercised (which may be based on performance criteria) or settled, any vesting acceleration or waiver of forfeiture restrictions, the method to satisfy tax withholding obligations or any other tax liability legally due, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;

(e) determine the number of Shares or other consideration subject to Awards;

 

2


(f) determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;

(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary, or Affiliate;

(h) grant waivers of Plan or Award conditions;

(i) determine the vesting, exercisability, and payment of Awards;

(j) correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

(k) determine whether an Award has been vested and/or earned;

(l) determine the terms and conditions of any, and to institute any Exchange Program;

(m) reduce or modify any criteria with respect to Performance Factors;

(n) adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events, or circumstances to avoid windfalls or hardships;

(o) adopt terms and conditions, rules, and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States or to qualify Awards for special tax treatment under laws of jurisdictions other than the United States;

(p) exercise discretion with respect to Performance Awards;

(q) make all other determinations necessary or advisable for the administration of this Plan; and

(r) delegate any of the foregoing to a subcommittee or to one or more executive officers pursuant to a specific delegation as permitted by applicable law, including Section 157(c) of the Delaware General Corporation Law.

4.2. Committee Interpretation and Discretion. Any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination will be final and binding on the Company and all persons having an interest in any Award under the Plan. Any dispute regarding the interpretation of the Plan or any Award Agreement will be submitted by the Participant or Company to the Committee for review. The resolution of such a dispute by the Committee will be final and binding on the Company and the Participant. The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution will be final and binding on the Company and the Participant.

 

3


4.3. Section 16 of the Exchange Act. Awards granted to Participants who are subject to Section 16 of the Exchange Act must be approved by two or more “non-employee directors” (as defined in the regulations promulgated under Section 16 of the Exchange Act).

4.4. Documentation. The Award Agreement for a given Award, the Plan, and any other documents may be delivered to, and accepted by, a Participant or any other person in any manner (including electronic distribution or posting) that meets applicable legal requirements.

4.5. Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws and practices in other countries in which the Company, its Subsidiaries, and Affiliates operate or have Employees or other individuals eligible for Awards, the Committee, in its sole discretion, will have the power and authority to: (a) determine which Subsidiaries and Affiliates will be covered by the Plan; (b) determine which individuals outside the United States are eligible to participate in the Plan, which may include individuals who provide services to the Company, Subsidiary or Affiliate under an agreement with a foreign nation or agency; (c) modify the terms and conditions of any Award granted to individuals outside the United States or foreign nationals to comply with applicable foreign laws, policies, customs, and practices; (d) establish subplans and modify exercise procedures, vesting conditions, and other terms and procedures to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications will be attached to this Plan as appendices, if necessary); and (e) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals, provided, however, that no action taken under this Section 4.5 will increase the Share limitations contained in Section 2.1 hereof. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards will be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

5. OPTIONS. An Option is the right but not the obligation to purchase a Share, subject to certain conditions, if applicable. The Committee may grant Options to eligible Employees, Consultants, and Directors and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ISOs”) or Nonqualified Stock Options (“NSOs”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may vest and be exercised, and all other terms and conditions of the Option, subject to the following terms of this section.

5.1. Option Grant. Each Option granted under this Plan will identify the Option as an ISO or an NSO. An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (a) determine the nature, length, and starting date of any Performance Period for each Option; and (b) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.

5.2. Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, or a specified future date. The Award Agreement will be delivered to the Participant within a reasonable time after the granting of the Option.

5.3. Exercise Period. Options may be vested and exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option, provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted and provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary (“Ten Percent Stockholder”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

 

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5.4. Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted, provided that: (a) the Exercise Price of an Option will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant, and (b) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 12 and the Award Agreement and in accordance with any procedures established by the Company.

5.5. Method of Exercise. Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share. An Option will be deemed exercised when the Company receives: (a) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option (and/or via electronic execution through the authorized third-party administrator), and (b) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

5.6. Termination of Service. If the Participant’s Service terminates for any reason except for Cause or the Participant’s death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates no later than three (3) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participant’s employment terminates deemed to be the exercise of an NSO), but in any event no later than the expiration date of the Options.

(a) Death. If the Participant’s Service terminates because of the Participant’s death (or the Participant dies within three (3) months after Participant’s Service terminates other than for Cause or because of the Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant’s legal representative, or authorized assignee, no later than twelve (12) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee), but in any event no later than the expiration date of the Options.

(b) Disability. If the Participant’s Service terminates because of the Participant’s Disability, then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12)

 

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months after the date Participant’s Service terminates (or such shorter time period not less than six (6) months or longer time period as may be determined by the Committee, with any exercise beyond (a) three (3) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code or (b) twelve (12) months after the date Participant’s employment terminates when the termination of Service is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NSO), but in any event no later than the expiration date of the Options.

(c) Cause. Unless otherwise determined by the Committee, if the Participant’s Service terminates for Cause, then Participant’s Options (whether or not vested) will expire on the date of termination of Participant’s Service if the Committee has reasonably determined in good faith that such cessation of Services has resulted in connection with an act or failure to act constituting Cause (or such Participant’s Services could have been terminated for Cause (without regard to the lapsing of any required notice or cure periods in connection therewith) at the time such Participant terminated Service), or at such later time and on such conditions as are determined by the Committee, but in any event no later than the expiration date of the Options. Unless otherwise provided in an employment agreement, Award Agreement, or other applicable agreement, Cause will have the meaning set forth in the Plan.

5.7. Limitations on ISOs. With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

5.8. Modification, Extension or Renewal. The Committee may modify, extend, or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed, or otherwise altered will be treated in accordance with Section 424(h) of the Code. Subject to Section 19 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants, provided, however, that the Exercise Price may not be reduced below the Fair Market Value on the date the action is taken to reduce the Exercise Price.

5.9. No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended, or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

6. RESTRICTED STOCK UNITS. A Restricted Stock Unit (“RSU”) is an award to an eligible Employee, Consultant, or Director covering a number of Shares that may be settled by issuance of those Shares (which may consist of Restricted Stock) or in cash. All RSUs will be made pursuant to an Award Agreement.

 

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6.1. Terms of RSUs. The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU, (b) the time or times during which the RSU may be settled, (c) the consideration to be distributed on settlement, and (d) the effect of the Participant’s termination of Service on each RSU, provided that no RSU will have a term longer than ten (10) years. An RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s Award Agreement. If the RSU is being earned upon satisfaction of Performance Factors, then the Committee will: (i) determine the nature, length, and starting date of any Performance Period for the RSU; (ii) select from among the Performance Factors to be used to measure the performance, if any; and (iii) determine the number of Shares deemed subject to the RSU. Performance Periods may overlap and Participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.

6.2. Form and Timing of Settlement. Payment of earned RSUs will be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both. The Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code to the extent applicable.

6.3. Termination of Service. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

7. RESTRICTED STOCK AWARDS. A Restricted Stock Award is an offer by the Company to sell to an eligible Employee, Consultant, or Director Shares that are subject to restrictions (“Restricted Stock”). The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the Plan.

7.1. Restricted Stock Purchase Agreement. All purchases under a Restricted Stock Award will be evidenced by an Award Agreement. Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant. If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.

7.2. Purchase Price. The Purchase Price for a Restricted Stock Award will be determined by the Committee and may be less than Fair Market Value on the date the Restricted Stock Award is granted. Payment of the Purchase Price must be made in accordance with Section 12 of the Plan, and the Award Agreement and in accordance with any procedures established by the Company.

7.3. Terms of Restricted Stock Awards. Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified period of Service with the Company or upon completion of Performance Factors, if any, during any Performance Period as set out in advance in the Participant’s Award Agreement. Prior to the grant of a Restricted Stock Award, the Committee will: (a) determine the nature, length, and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.

 

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7.4. Termination of Service. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

8. STOCK BONUS AWARDS. A Stock Bonus Award is an award to an eligible Employee, Consultant, or Director of Shares for Services to be rendered or for past Services already rendered to the Company or any Parent, Subsidiary, or Affiliate. All Stock Bonus Awards will be made pursuant to an Award Agreement. No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.

8.1. Terms of Stock Bonus Awards. The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon. These restrictions may be based upon completion of a specified period of Service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement. Prior to the grant of any Stock Bonus Award the Committee will: (a) determine the nature, length, and starting date of any Performance Period for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.

8.2. Form of Payment to Participant. Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.

8.3. Termination of Service. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

9. STOCK APPRECIATION RIGHTS. A Stock Appreciation Right (“SAR”) is an award to an eligible Employee, Consultant, or Director that may be settled in cash or Shares (which may consist of Restricted Stock) having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the Exercise Price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement). All SARs will be made pursuant to an Award Agreement.

9.1. Terms of SARs. The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR, (b) the Exercise Price and the time or times during which the SAR may be settled, (c) the consideration to be distributed on settlement of the SAR, and (d) the effect of the Participant’s termination of Service on each SAR. The Exercise Price of the SAR will be determined by the Committee when the SAR is granted and may not be less than Fair Market Value of the Shares on the date of grant. A SAR may be awarded upon satisfaction of Performance Factors, if any, during any Performance Period as are set out in advance in the Participant’s individual Award Agreement. If the SAR is being earned upon the satisfaction of Performance Factors, then the Committee will: (i) determine the nature, length, and starting date of any Performance Period for each SAR; and (ii) select from among the Performance Factors to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Factors and other criteria.

 

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9.2. Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The SAR Agreement will set forth the expiration date, provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee). Notwithstanding the foregoing, the rules of Section 5.6 also will apply to SARs.

9.3. Form of Settlement. Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (a) the difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price, by (b) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code to the extent applicable.

9.4. Termination of Service. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

10. PERFORMANCE AWARDS.

10.1. Types of Performance Awards. A Performance Award is an award to an eligible Employee, Consultant, or Director that is based upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee, and may be settled in cash, Shares (which may consist of, without limitation, Restricted Stock), other property, or any combination thereof. Grants of Performance Awards will be made pursuant to an Award Agreement that cites Section 10 of the Plan.

(a) Performance Shares. The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded, and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares will consist of a unit valued by reference to a designated number of Shares, the value of which may be paid to the Participant by delivery of Shares or, if set forth in the instrument evidencing the Award, of such property as the Committee will determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. The amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee will determine in its sole discretion.

(b) Performance Units. The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded, and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units will consist of a unit valued by reference to a designated amount of property other than Shares, which value may be paid to the Participant by delivery of such property as the Committee will determine, including, without limitation, cash, Shares, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee.

(c) Cash-Settled Performance Awards. The Committee may also grant cash-based Performance Awards to Participants under the terms of this Plan. Such awards will be based on the attainment of performance goals using the Performance Factors within this Plan that are established by the Committee for the relevant performance period.

 

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10.2. Terms of Performance Awards. The Committee will determine, and each Award Agreement will set forth, the terms of each Performance Award including, without limitation: (a) the amount of any cash bonus, (b) the number of Shares deemed subject to an award of Performance Shares, (c) the Performance Factors and Performance Period that will determine the time and extent to which each award of Performance Shares will be settled, (d) the consideration to be distributed on settlement, and (e) the effect of the Participant’s termination of Service on each Performance Award. In establishing Performance Factors and the Performance Period the Committee will: (i) determine the nature, length, and starting date of any Performance Period; (ii) select from among the Performance Factors to be used; and (iii) determine the number of Shares deemed subject to the award of Performance Shares. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant. Prior to settlement the Committee will determine the extent to which Performance Awards have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different Performance Periods and different performance goals and other criteria.

10.3. Termination of Service. Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

11. CASH AWARDS. A Cash Award (“Cash Award”) is an award that is denominated in, or payable to an eligible Participant solely in, cash, as deemed by the Committee to be consistent with the purposes of the Plan. Cash Awards shall be subject to the terms, conditions, restrictions and limitations determined by the Committee, in its sole discretion, from time to time. Awards granted pursuant to this Section 11 may be granted with value and payment contingent upon the achievement of Performance Factors.

12. PAYMENT FOR SHARE PURCHASES. Payment from a Participant for Shares purchased pursuant to this Plan may be made in cash or by check or, where expressly approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):

(a) by cancellation of indebtedness of the Company to the Participant;

(b) by surrender of shares of the Company held by the Participant that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;

(c) by waiver of compensation due or accrued to the Participant for services rendered or to be rendered to the Company or a Parent or Subsidiary;

(d) by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Company in connection with the Plan;

(e) by any combination of the foregoing; or

(f) by any other method of payment as is permitted by applicable law.

The Committee may limit the availability of any method of payment, to the extent the Committee determines, in its discretion, such limitation is necessary or advisable to comply with applicable law or facilitate the administration of the Plan.

 

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13. GRANTS TO NON-EMPLOYEE DIRECTORS.

13.1. General. Non-Employee Directors are eligible to receive any type of Award offered under this Plan except ISOs. Awards pursuant to this Section 13 may be automatically made pursuant to policy adopted by the Board, or made from time to time as determined in the discretion of the Board. No Non-Employee Director may receive Awards under the Plan that, when combined with cash compensation received for service as a Non-Employee Director, exceed Seven Hundred and Fifty Thousand Dollars ($750,000.00) in value (as described below) in any fiscal year. The value of Awards for purposes of complying with this maximum will be determined as follows: (a) for Options and SARs, grant date fair value will be calculated using the Company’s regular valuation methodology for determining the grant date fair value of Options for reporting purposes, and (b) for all other Awards other than Options and SARs, grant date fair value will be determined by either (i) calculating the product of the Fair Market Value per Share on the date of grant and the aggregate number of Shares subject to the Award, or (ii) calculating the product using an average of the Fair Market Value over a number of trading days and the aggregate number of Shares subject to the Award as determined by the Committee. Awards granted to an individual while he or she was serving in the capacity as an Employee or while he or she was a Consultant but not a Non-Employee Director will not count for purposes of the limitations set forth in this Section 13.1.

13.2. Eligibility. Awards pursuant to this Section 13 will be granted only to Non-Employee Directors. A Non-Employee Director who is elected or re-elected as a member of the Board will be eligible to receive an Award under this Section 13.

13.3. Vesting, Exercisability and Settlement. Except as set forth in Section 22, Awards will vest, become exercisable, and be settled as determined by the Board. With respect to Options and SARs, the exercise price granted to Non-Employee Directors will not be less than the Fair Market Value of the Shares at the time that such Option or SAR is granted.

13.4. Election to Receive Awards in Lieu of Cash. A Non-Employee Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash or Awards or a combination thereof, if permitted, and as determined, by the Committee. Such Awards will be issued under the Plan. An election under this Section 13.4 will be filed with the Company on the form prescribed by the Company.

14. WITHHOLDING TAXES.

14.1. Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan or a tax event occurs, the Company may require the Participant to remit to the Company, or to the Parent, Subsidiary, or Affiliate, as applicable, employing the Participant an amount sufficient to satisfy applicable U.S. federal, state, local, and international income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items (the “Tax-Related Items”) legally due from the Participant prior to the delivery of Shares pursuant to exercise or settlement of any Award. Whenever payments in satisfaction of Awards granted under this Plan are to be made in cash, such payment will be net of an amount sufficient to satisfy applicable withholding obligations for Tax-Related Items. Unless otherwise determined by the Committee, the Fair Market Value of the Shares will be determined as of the date that the taxes are required to be withheld and such Shares will be valued based on the value of the actual trade or, if there is none, the Fair Market Value of the Shares as of the previous trading day.

14.2. Stock Withholding. The Committee, or its delegate(s), as permitted by applicable law, in its sole discretion and pursuant to such procedures as it may specify from time to time and to limitations of local law, may require or permit a Participant to satisfy such Tax Related Items legally due from the Participant, in whole or in part by (without limitation) (a) paying cash, (b) having the Company withhold

 

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otherwise deliverable cash or Shares having a Fair Market Value equal to the Tax-Related Items to be withheld, (c) delivering to the Company already-owned shares having a Fair Market Value equal to the Tax-Related Items to be withheld, or (d) withholding from the proceeds of the sale of otherwise deliverable Shares acquired pursuant to an Award either through a voluntary sale or through a mandatory sale arranged by the Company. The Company may withhold or account for these Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including up to the maximum permissible statutory tax rate for the applicable tax jurisdiction, to the extent consistent with applicable laws.

15. TRANSFERABILITY. Unless determined otherwise by the Committee, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. If the Committee makes an Award transferable, including, without limitation, by instrument to an inter vivos or testamentary trust in which the Awards are to be passed to beneficiaries upon the death of the trustor (settlor) or by gift or by domestic relations order to a Permitted Transferee, such Award will contain such additional terms and conditions as the Committee deems appropriate. All Awards will be exercisable: (a) during the Participant’s lifetime only by the Participant or the Participant’s guardian or legal representative; (b) after the Participant’s death, by the legal representative of the Participant’s heirs or legatees; and (c) in the case of all awards except ISOs, by a Permitted Transferee.

16. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.

16.1. Voting and Dividends. No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant, except for any Dividend Equivalent Rights permitted by an applicable Award Agreement. Any Dividend Equivalent Rights will be subject to the same vesting or performance conditions as the underlying Award. In addition, the Committee may provide that any Dividend Equivalent Rights permitted by an applicable Award Agreement will be deemed to have been reinvested in additional Shares or otherwise reinvested. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant will have no right to such stock dividends or stock distributions with respect to Unvested Shares, and any such dividends or stock distributions will be accrued and paid only at such time, if any, as such Unvested Shares become vested Shares. The Committee, in its discretion, may provide in the Award Agreement evidencing any Award that the Participant will be entitled to Dividend Equivalent Rights with respect to the payment of cash dividends on Shares underlying an Award during the period beginning on the date the Award is granted and ending, with respect to each Share subject to the Award, on the earlier of the date on which the Award is exercised or settled or the date on which it is forfeited provided, that no Dividend Equivalent Right will be paid with respect to the Unvested Shares, and such dividends or stock distributions will be accrued and paid only at such time, if any, as such Unvested Shares become vested Shares. Such Dividend Equivalent Rights, if any, will be credited to the Participant in the form of additional whole Shares as of the date of payment of such cash dividends on Shares.

16.2. Restrictions on Shares. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a “Right of Repurchase”) a portion of any or all Unvested Shares held by a Participant following such Participant’s termination of Service at any time within ninety (90) days (or such longer or shorter time determined by the Committee) after the later of the date Participant’s Service terminates and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Purchase Price or Exercise Price, as the case may be.

 

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17. CERTIFICATES. All Shares or other securities whether or not certificated, delivered under this Plan will be subject to such stock transfer orders, legends, and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable U.S. federal, state, or foreign securities law, or any rules, regulations, and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted, and any non-U.S. exchange controls or securities law restrictions to which the Shares are subject.

18. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of the Participant’s obligation to the Company under the promissory note, provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, the Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

19. REPRICING; EXCHANGE AND BUYOUT OF AWARDS. Without prior stockholder approval the Committee may (a) reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them, notwithstanding any adverse tax consequences to them arising from the repricing), and (b) with the consent of the respective Participants (unless not required pursuant to Section 5.9 of the Plan), pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards.

20. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless such Award is in compliance with all applicable U.S. and foreign federal and state securities and exchange control and other laws, rules, and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable and/or (b) completion of any registration or other qualification of such Shares under any state, federal, or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification, or listing requirements of any foreign or state securities laws, exchange control laws, stock exchange, or automated quotation system, and the Company will have no liability for any inability or failure to do so.

21. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary, or Affiliate or limit in any way the right of the Company or any Parent, Subsidiary, or Affiliate to terminate Participant’s employment or other relationship at any time.

 

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22. CORPORATE TRANSACTIONS.

22.1. Assumption or Replacement of Awards by Successor. In the event that the Company is subject to a Corporate Transaction, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Corporate Transaction, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participant’s consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Corporate Transaction:

(a) The continuation of an outstanding Award by the Company (if the Company is the successor entity).

(b) The assumption of an outstanding Award by the successor or acquiring entity (if any) of such Corporate Transaction (or by its parents, if any), which assumption, will be binding on all selected Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable.

(c) The substitution by the successor or acquiring entity in such Corporate Transaction (or by its parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code and/or Section 409A of the Code, as applicable).

(d) The full or partial acceleration of exercisability or vesting and accelerated expiration of an outstanding Award and lapse of the Company’s right to repurchase or re-acquire shares acquired under an Award or lapse of forfeiture rights with respect to shares acquired under an Award.

(e) The settlement of the full value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its parent, if any) with a fair market value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participant’s continued service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 22.1(e), the fair market value of any security shall be determined without regard to any vesting conditions that may apply to such security.

(f) The cancellation of outstanding Awards in exchange for no consideration.

The Board shall have full power and authority to assign the Company’s right to repurchase or re-acquire or forfeiture rights to such successor or acquiring corporation. In addition, in the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Participant’s Award will, if exercisable, be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period. Awards need not be treated similarly in a Corporate Transaction and treatment may vary from Award to Award and/or from Participant to Participant.

 

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22.2. Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either: (a) granting an Award under this Plan in substitution of such other company’s award, or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged (except that the Purchase Price or the Exercise Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option in substitution rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. Substitute Awards will not reduce the number of Shares authorized for grant under the Plan or authorized for grant to a Participant in a calendar year.

22.3. Non-Employee Directors’ Awards. Notwithstanding any provision to the contrary herein, in the event of a Corporate Transaction, the vesting of all Awards granted to Non-Employee Directors will accelerate and such Awards will become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.

23. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will be submitted for the approval of the Company’s stockholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.

24. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the date this Plan is adopted by the Board. This Plan and all Awards granted hereunder will be governed by and construed in accordance with the laws of the State of Delaware (excluding its conflict of laws rules).

25. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan, provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval, provided further that a Participant’s Award will be governed by the version of this Plan then in effect at the time such Award was granted. No termination or amendment of the Plan will affect any then-outstanding Award unless expressly provided by the Committee. In any event, no termination or amendment of the Plan or any outstanding Award may adversely affect any then outstanding Award without the consent of the Participant, unless such termination or amendment is necessary to comply with applicable law, regulation, or rule.

26. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

27. INSIDER TRADING POLICY. Each Participant who receives an Award will comply with any policy adopted by the Company from time to time covering transactions in the Company’s securities by Employees, officers, and/or Directors of the Company, as well as with any applicable insider trading or market abuse laws to which the Participant may be subject.

 

15


28. ALL AWARDS SUBJECT TO COMPANY CLAWBACK OR RECOUPMENT POLICY. All Awards, subject to applicable law, will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participant’s employment or other service with the Company that is applicable to officers, Employees, Directors or other service providers of the Company, and in addition to any other remedies available under such policy and applicable law, may require the cancellation of outstanding Awards and the recoupment of any gains realized with respect to Awards.

29. DEFINITIONS. As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:

29.1.Affiliate” means (a) any entity that, directly or indirectly, is controlled by, controls, or is under common control with, the Company, and (b) any entity in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.

29.2.Award” means any award under the Plan, including any Option, Performance Award, Cash Award, Restricted Stock, Stock Bonus, Stock Appreciation Right, or Restricted Stock Unit.

29.3.Award Agreement” means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, and country-specific appendix thereto for grants to non-U.S. Participants, which will be in substantially a form (which need not be the same for each Participant) that the Committee (or in the case of Award agreements that are not used for Insiders, the Committee’s delegate(s)) has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.

29.4.Board” means the Board of Directors of the Company.

29.5.Cash Award” means an award as defined in Section 11 and granted under the Plan.

29.6.Cause” means a determination by the Company that the Participant has committed an act or acts constituting any of the following: (i) dishonesty, fraud, misconduct or negligence in connection with Participant’s duties to the Company, (ii) unauthorized disclosure or use of the Company’s confidential or proprietary information, (iii) misappropriation of a business opportunity of the Company, (iv) materially aiding Company competitor, (v) a felony conviction, (vi) failure or refusal to attend to the duties or obligations of the Participant’s position (vii) violation or breach of, or failure to comply with, the Company’s code of ethics or conduct, any of the Company’s rules, policies or procedures applicable to the Participant or any agreement in effect between the Company and the Participant or (viii) other conduct by such Participant that could be expected to be harmful to the business, interests or reputation of the Company. The determination as to whether Cause for a Participant’s termination exists will be made in good faith by the Company and will be final and binding on the Participant. This definition does not in any way limit the Company’s or any Parent’s or Subsidiary’s ability to terminate a Participant’s employment or services at any time as provided in Section 21 above. Notwithstanding the foregoing, the foregoing definition of “Cause” may, in part or in whole, be modified or replaced in each individual employment agreement, Award Agreement, or other applicable agreement with any Participant, provided that such document supersedes the definition provided in this Section 29.6.

29.7.Code” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

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29.8.Committee” means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.

29.9.Common Stock” means the common stock of the Company.

29.10.Company” means Bill.Com Holdings, Inc., a Delaware corporation, or any successor corporation.

29.11.Consultant” means any natural person, including an advisor or independent contractor, engaged by the Company or a Parent, Subsidiary, or Affiliate to render services to such entity.

29.12.Corporate Transaction” means the occurrence of any of the following events: (a) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities, provided, however, that for purposes of this subclause (a) the acquisition of additional securities by any one Person who is considered to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be considered a Corporate Transaction; (b) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (c) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; (d) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of capital stock of the Company), or (e) a change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purpose of this subclause (e), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Corporate Transaction. For purposes of this definition, Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, to the extent that any amount constituting deferred compensation (as defined in Section 409A of the Code) would become payable under this Plan by reason of a Corporate Transaction, such amount will become payable only if the event constituting a Corporate Transaction would also qualify as a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company, each as defined within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and IRS guidance that has been promulgated or may be promulgated thereunder from time to time.

29.13.Director” means a member of the Board.

29.14.Disability” means in the case of incentive stock options, total and permanent disability as defined in Section 22(e)(3) of the Code and in the case of other Awards, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.

 

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29.15.Dividend Equivalent Right” means the right of a Participant, granted at the discretion of the Committee or as otherwise provided by the Plan, to receive a credit for the account of such Participant in an amount equal to the cash, stock, or other property dividends in amounts equal equivalent to cash, stock, or other property dividends for each Share represented by an Award held by such Participant.

29.16.Effective Date” means the day immediately prior to the Company’s IPO Registration Date, subject to approval of the Plan by the Company’s stockholders.

29.17.Employee” means any person, including officers and Directors, providing services as an employee to the Company or any Parent, Subsidiary, or Affiliate. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

29.18.Exchange Act” means the United States Securities Exchange Act of 1934, as amended.

29.19.Exchange Program” means a program pursuant to which (a) outstanding Awards are surrendered, cancelled, or exchanged for cash, the same type of Award, or a different Award (or combination thereof); or (b) the exercise price of an outstanding Award is increased or reduced.

29.20.Exercise Price” means, with respect to an Option, the price at which a holder may purchase the Shares issuable upon exercise of an Option and with respect to a SAR, the price at which the SAR is granted to the holder thereof.

29.21.Fair Market Value” means, as of any date, the value of a Share, determined as follows:

(a) if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(b) if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Committee deems reliable;

(c) in the case of an Option or SAR grant made on the IPO Registration Date, the price per share at which Shares are initially offered for sale to the public by the Company’s underwriters in the initial public offering of Shares as set forth in the Company’s final prospectus included within the registration statement on Form S-1 filed with the SEC under the Securities Act; or

(d) by the Board or the Committee in good faith.

29.22.Insider” means an officer or Director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

29.23.IPO Registration Date” means the date on which the Company’s registration statement on Form S-1 in connection with its initial public offering of common stock is declared effective by the SEC under the Securities Act.

29.24.IRS” means the United States Internal Revenue Service.

29.25.Non-Employee Director” means a Director who is not an Employee of the Company or any Parent, Subsidiary, or Affiliate.

 

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29.26.Option” means an award of an option to purchase Shares pursuant to Section 5.

29.27.Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

29.28.Participant” means a person who holds an Award under this Plan.

29.29.Performance Award” means an Award as defined in Section 10 and granted under the Plan, the payment of which is contingent upon achieving certain performance goals established by the Committee.

29.30.Performance Factors” means any of the factors selected by the Committee and specified in an Award Agreement, from among the following measures, either individually, alternatively or in any combination, applied to the Company as a whole or any business unit or Subsidiary, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable on an absolute basis or relative to a pre-established target, to determine whether the performance goals established by the Committee with respect to applicable Awards have been satisfied:

(a) profit before tax;

(b) billings;

(c) revenue;

(d) net revenue;

(e) earnings (which may include earnings before interest and taxes, earnings before taxes, net earnings, stock-based compensation expenses, depreciation, and amortization);

(f) operating income;

(g) operating margin;

(h) operating profit;

(i) controllable operating profit or net operating profit;

(j) net profit;

(k) gross margin;

(l) operating expenses or operating expenses as a percentage of revenue;

(m) net income;

(n) earnings per share;

(o) total stockholder return;

(p) market share;

 

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(q) return on assets or net assets;

(r) the Company’s stock price;

(s) growth in stockholder value relative to a pre-determined index;

(t) return on equity;

(u) return on invested capital;

(v) cash flow (including free cash flow or operating cash flows);

(w) cash conversion cycle;

(x) economic value added;

(y) individual confidential business objectives;

(z) contract awards or backlog;

(aa) overhead or other expense reduction;

(bb) credit rating;

(cc) strategic plan development and implementation;

(dd) succession plan development and implementation;

(ee) improvement in workforce diversity;

(ff) customer indicators and/or satisfaction;

(gg) new product invention or innovation;

(hh) attainment of research and development milestones;

(ii) improvements in productivity;

(jj) bookings;

(kk) attainment of objective operating goals and employee metrics;

(ll) sales;

(mm) expenses;

(nn) balance of cash, cash equivalents, and marketable securities;

(oo) completion of an identified special project;

(pp) completion of a joint venture or other corporate transaction;

 

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(qq) employee satisfaction and/or retention;

(rr) research and development expenses;

(ss) working capital targets and changes in working capital; and

(tt) any other metric that is capable of measurement as determined by the Committee.

The Committee may provide for one or more equitable adjustments to the Performance Factors to preserve the Committee’s original intent regarding the Performance Factors at the time of the initial award grant, such as but not limited to, adjustments in recognition of unusual or non-recurring items such as acquisition related activities or changes in applicable accounting rules. It is within the sole discretion of the Committee to make or not make any such equitable adjustments.

29.31.Performance Period” means one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Factors will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Award.

29.32.Performance Share” means an Award as defined in Section 10 and granted under the Plan, the payment of which is contingent upon achieving certain performance goals established by the Committee.

29.33.Performance Unit” means an Award as defined in Section 10 and granted under the Plan, the payment of which is contingent upon achieving certain performance goals established by the Committee.

29.34.Permitted Transferee” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (including adoptive relationships) of the Employee, any person sharing the Employee’s household (other than a tenant or employee), a trust in which these persons (or the Employee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Employee) control the management of assets, and any other entity in which these persons (or the Employee) own more than 50% of the voting interests.

29.35.Plan” means this Bill.Com Holdings, Inc., 2019 Equity Incentive Plan.

29.36.Purchase Price” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option or SAR.

29.37.Restricted Stock Award” means an Award as defined in Section 6 and granted under the Plan, or issued pursuant to the early exercise of an Option.

29.38.Restricted Stock Unit” means an Award as defined in Section 9 and granted under the Plan.

29.39.SEC” means the United States Securities and Exchange Commission.

29.40.Securities Act” means the United States Securities Act of 1933, as amended.

 

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29.41.Service” will mean service as an Employee, Consultant, Director, or Non-Employee Director, to the Company or a Parent, Subsidiary, or Affiliate, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement. An Employee will not be deemed to have ceased to provide Service in the case of (a) sick leave, (b) military leave, or (c) any other leave of absence approved by the Company, provided that such leave is for a period of not more than ninety (90) days unless reemployment upon the expiration of such leave is guaranteed by contract or statute. Notwithstanding anything to the contrary, an Employee will not be deemed to have ceased to provide Service if a formal policy adopted from time to time by the Company and issued and promulgated to employees in writing provides otherwise. In the case of any Employee on an approved leave of absence or a reduction in hours worked (for illustrative purposes only, a change in schedule from that of full-time to part-time), the Committee may make such provisions respecting suspension or modification of vesting of the Award while on leave from the employ of the Company or a Parent, Subsidiary, or Affiliate or during such change in working hours as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement. In the event of military or other protected leave, if required by applicable laws, vesting will continue for the longest period that vesting continues under any other statutory or Company approved leave of absence and, upon a Participant’s returning from military leave, he or she will be given vesting credit with respect to Awards to the same extent as would have applied had the Participant continued to provide Service to the Company throughout the leave on the same terms as he or she was providing Service immediately prior to such leave. An employee will have terminated employment as of the date he or she ceases to provide Service (regardless of whether the termination is in breach of local employment laws or is later found to be invalid) and employment will not be extended by any notice period or garden leave mandated by local law, provided, however, that a change in status from an Employee to a Consultant or Non-Employee Director (or vice versa) will not terminate the Participant’s Service, unless determined by the Committee, in its discretion. The Committee will have sole discretion to determine whether a Participant has ceased to provide Service and the effective date on which the Participant ceased to provide Service.

29.42.Shares” means shares of the Common Stock and the common stock of any successor entity of the Company.

29.43.Stock Appreciation Right” means an Award defined in Section 8 and granted under the Plan.

29.44.Stock Bonus” means an Award defined in Section 7 and granted under the Plan.

29.45.Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

29.46.Treasury Regulations” means regulations promulgated by the United States Treasury Department.

29.47.Unvested Shares” means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).

 

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BILL.COM, INC.

2019 EQUITY INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

Unless otherwise defined herein, the terms defined in the Bill.Com, Inc. (the “Company”) 2019 Equity Incentive Plan (the “Plan”) will have the same meanings in this Notice of Stock Option Grant and the electronic representation of this Notice of Stock Option Grant established and maintained by the Company or a third party designated by the Company (this “Notice”).

Name:

Address:

You (the “Optionee”) have been granted an option to purchase shares of Common Stock of the Company (the “Option”) under the Plan subject to the terms and conditions of the Plan, this Notice, and the Stock Option Agreement (the “Option Agreement”).

 

Grant Number:   
Date of Grant:   
Vesting Commencement Date:   
Exercise Price per Share:   
Total Number of Shares:   
Type of Option:             Non-Qualified Stock Option
            Incentive Stock Option
Expiration Date:                     , 20     ; the Option expires earlier if Optionee’s Service terminates earlier, as described in the Option Agreement.
Vesting Schedule:    Subject to the limitations set forth in this Notice, the Plan, and the Agreement, the Option will vest in accordance with the following schedule: [insert applicable vesting schedule, which may include performance metrics]

By accepting (whether in writing, electronically, or otherwise) the Option, Optionee acknowledges and agrees to the following:

 

  1)

Optionee understands that Optionee’s Service is for an unspecified duration, can be terminated at any time (i.e., is “at-will”) except where otherwise prohibited by applicable law, and that nothing in this Notice, the Option Agreement, or the Plan changes the nature of that relationship. Optionee acknowledges that the vesting of the Option pursuant to this Notice is subject to Optionee’s continuing Service. Optionee agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Optionee’s Service status changes between full- and part-time and/or in the event the Optionee is on a leave of absence, in accordance with Company policies relating to work schedules and vesting of Awards or as determined by the Committee. Optionee

 

  2)

This grant is made under and governed by the Plan, the Agreement, and this Notice, and this Notice is subject to the terms and conditions of the Agreement and the Plan, both of which are incorporated herein by reference. Optionee has read the Notice, the Option Agreement and, the Plan.

 

  3)

Optionee has read the Company’s Insider Trading Policy, and agrees to comply with such policy, as it may be amended from time to time, whenever Optionee acquires or disposes of the Company’s securities.

 

  4)

By accepting the Option, Optionee consents to electronic delivery and participation as set forth in the Option Agreement.


OPTIONEE                                          BILL.COM, INC.

Signature:

 

 

    By:  

 

Print Name:

 

 

   

Its:

 

 

 

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BILL.COM, INC.

2019 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined in this Stock Option Agreement (this “Option Agreement”), any capitalized terms used herein will have the same meaning ascribed to them in the Bill.Com, Inc. 2019 Equity Incentive Plan (the “Plan”).

Optionee has been granted an option to purchase Shares (the “Option”) of Bill.Com, Inc. (the “Company”), subject to the terms, restrictions, and conditions of the Plan, the Notice of Stock Option Grant (the “Notice”), and this Option Agreement. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of the Notice or this Option Agreement, the terms and conditions of the Plan will prevail.

1. Vesting Rights. Subject to the applicable provisions of the Plan and this Option Agreement, the Option may be exercised, in whole or in part, in accordance with the Vesting Schedule set forth in the Notice. Optionee acknowledges and agrees that the Vesting Schedule may change prospectively in the event Optionee’s Service status changes between full and part-time and/or in the event Optionee is on a leave of absence, in accordance with Company policies relating to work schedules and vesting of Awards or as determined by the Committee. Optionee acknowledges that the vesting of the Option pursuant to this Notice and Agreement is subject to Optionee’s continuing Service.

2. Grant of Option. Optionee has been granted an Option for the number of Shares set forth in the Notice at the exercise price per Share in U.S. Dollars set forth in the Notice (the “Exercise Price”). If designated in the Notice as an Incentive Stock Option (“ISO”), the Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if the Option is intended to be an ISO, to the extent that it exceeds the U.S. $100,000 rule of Code Section 422(d) it will be treated as a Nonqualified Stock Option (“NSO”).

3. Termination Period.

(a) General Rule. If Optionee’s Service terminates for any reason except death or Disability, and other than for Cause, then the Option will expire at the close of business at Company headquarters on the date three (3) months after Optionee’s Termination Date (as defined below) (with any exercise beyond three (3) months after the date Optionee’s employment terminates deemed to be the exercise of an NSO). The Company determines when Optionee’s Service terminates for all purposes under this Option Agreement.

(b) Death; Disability. If Optionee dies before Optionee’s Service terminates (or Optionee dies within three (3) months of Optionee’s termination of Service other than for Cause), then the Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date of death (subject to the expiration details in Section 7). If Optionee’s Service terminates because of Optionee’s Disability, then the Option will expire at the close of business at Company headquarters on the date twelve (12) months after Optionee’s Termination Date (subject to the expiration details in Section 7).

(c) Cause. Unless otherwise determined by the Committee, the Option (whether or not vested) will terminate immediately upon the Optionee’s cessation of Services if the Company reasonably determines in good faith that such cessation of Services has resulted in connection with an act or failure to act constituting Cause (or the Optionee’s Services could have been terminated for Cause (without regard to the lapsing of any required notice or cure periods in connection therewith) at the time the Optionee terminated Services).

 

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(d) No Notification of Exercise Periods. Optionee is responsible for keeping track of these exercise periods following Optionee’s termination of Service for any reason. The Company will not provide further notice of such periods. In no event will the Option be exercised later than the Expiration Date set forth in the Notice.

(e) Termination. For purposes of this Option, Optionee’s Service will be considered terminated as of the date Optionee is no longer providing Service to the Company, its Parent or one of its Subsidiaries or Affiliates (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 Optionee is employed or the terms of Optionee’s employment agreement, if any) (the “Termination Date”). The Committee will have the exclusive discretion to determine when Optionee is no longer actively providing services for purposes of Optionee’s Option (including whether Optionee may still be considered to be providing services while on an approved leave of absence). Unless otherwise provided in this Option Agreement or determined by the Company, Optionee’s right to vest in this Option under the Plan, if any, will terminate as of the Termination Date and will not be extended by any notice period (e.g., Optionee’s period of Service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Optionee is employed or the terms of Optionee’s employment agreement, if any). Following the Termination Date, Optionee may exercise the Option only as set forth in the Notice and this Section, provided that the period (if any) during which Optionee may exercise the Option after the Termination Date, if any, will commence on the date Optionee ceases to provide services and will not be extended by any notice period mandated under employment laws in the jurisdiction where Optionee is employed or terms of Optionee’s employment agreement, if any. If Optionee does not exercise this Option within the termination period set forth in the Notice or the termination periods set forth above, the Option will terminate in its entirety. In no event, may any Option be exercised after the Expiration Date of the Option as set forth in the Notice.

4. Exercise of Option.

(a) Right to Exercise. The Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice and the applicable provisions of the Plan and this Option Agreement. In the event of Optionee’s death, Disability, termination for Cause, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice, and this Option Agreement. The Option may not be exercised for a fraction of a Share.

(b) Method of Exercise. The Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “Exercise Notice”), 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 delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any applicable Tax-Related Items (as defined in Section 8 below). The Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price and payment of any applicable Tax-Related Items. No Shares will be issued pursuant to the exercise of the Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for United States income tax purposes the Exercised Shares will be considered transferred to Optionee on the date the Option is exercised with respect to such Exercised Shares.

(c) Exercise by Another. If another person wants to exercise the Option after it has been transferred to him or her in compliance with this Option Agreement, that person must prove to the Company’s satisfaction that he or she is entitled to exercise the Option. That person must also complete the proper Exercise Notice form (as described above) and pay the Exercise Price (as described below) and any applicable Tax-Related Items (as described below).

 

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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 Optionee:

(a) Optionee’s personal check (or readily available funds), wire transfer, or a cashier’s check;

(b) certificates for shares of Company stock that Optionee owns, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Exercise Price. Instead of surrendering shares of Company stock, Optionee may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to Optionee. However, Optionee may not surrender, or attest to the ownership of, shares of Company stock in payment of the Exercise Price of Optionee’s Option if Optionee’s action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;

(c) cashless exercise through irrevocable directions to a securities broker approved by the Company to sell all or part of the Shares covered by the Option and to deliver to the Company from the sale proceeds an amount sufficient to pay the Exercise Price and any applicable Tax-Related Items. The balance of the sale proceeds, if any, will be delivered to Optionee. The directions must be given by signing a special notice of exercise form provided by the Company; or

(d) other method authorized by the Company;

provided, however, that the Company may restrict the available methods of payment to facilitate compliance with applicable law or administration of the Plan.

6. Non-Transferability of Option. In general, except as provided below, only Optionee may exercise this Option prior to Optionee’s death. Optionee may not transfer or assign this Option, except as provided below. For instance, Optionee may not sell this Option or use it as security for a loan. If Optionee attempts to do any of these things, this Option will immediately become invalid. However, if Optionee is a U.S. taxpayer, Optionee may dispose of this Option in Optionee’s will. If Optionee is a U.S. taxpayer and this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow Optionee to transfer this Option as a gift to one or more family members. For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in- law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing Optionee’s household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which Optionee or one or more of these persons control the management of assets, and any entity in which Optionee or one or more of these persons own more than 50% of the voting interest. In addition, if Optionee is a U.S. taxpayer and this Option is designated as a NSO in the Notice of Grant, then the Committee may, in its sole discretion, allow Optionee to transfer this Option to Optionee’s spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights. The Committee will allow Optionee to transfer this Option only if both Optionee and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement. This Option may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during Optionee’s lifetime only by Optionee, Optionee’s guardian, or legal representative, as permitted in the Plan and applicable local laws. The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee.

7. Term of Option. The Option will in any event expire on the expiration date set forth in the Notice, which date is no more than ten (10) years after the Date of Grant (five (5) years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 5.3 of the Plan applies).

 

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8. Taxes.

(a) Responsibility for Taxes. Optionee acknowledges that, regardless of any action taken by the Company or, if different, a Parent, Subsidiary, or Affiliate employing or retaining Optionee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account, or other tax related items related to Optionee’s participation in the Plan and legally applicable to Optionee (“Tax-Related Items”) is and remains Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Option, including, but not limited to, the grant, vesting, or exercise of this Option; the subsequent sale of Shares acquired pursuant to such exercise; and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Option to reduce or eliminate Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if Optionee is subject to Tax-Related Items in more than one jurisdiction, Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. OPTIONEE SHOULD CONSULT A TAX ADVISER APPROPRIATELY QUALIFIED IN THE COUNTRY OR COUNTRIES IN WHICH OPTIONEE RESIDES OR IS SUBJECT TO TAXATION.

(b) Withholding. Prior to any relevant taxable or tax withholding event, as applicable, Optionee agrees to make arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any withholding obligations for Tax-Related Items by one or a combination of the following, all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable:

 

  (i)

withholding from Optionee’s wages or other cash compensation paid to Optionee by the Company and/or the Employer; or

 

  (ii)

withholding from proceeds of the sale of Shares acquired at exercise of this Option either through a voluntary sale or through a mandatory sale arranged by the Company (on Optionee’s behalf pursuant to this authorization and without further consent);

 

  (iii)

withholding Shares to be issued upon exercise of the Option, provided the Company only withholds the number of Shares necessary to satisfy no more than applicable statutory withholding amounts;

 

  (iv)

Optionee’s payment of a cash amount (including by check representing readily available funds or a wire transfer); or

 

  (v)

any other arrangement approved by the Committee and permitted under applicable law;

provided, however, that if Optionee is a Section 16 officer of the Company under the Exchange Act, then the method of withholding shall be a mandatory sale (unless the Committee as constituted in accordance with Rule 16b-3 of the Exchange Act shall establish an alternate method from alternatives (i) – (v) above prior to the Tax-Related Items withholding event).

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including up to the maximum permissible statutory rate for Optionee’s tax jurisdiction(s) in which case Optionee will have no entitlement to the equivalent amount in Shares and will receive a refund of any over-withheld amount in cash in accordance with applicable law. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Optionee is deemed to have been issued the full number of Exercised Shares; notwithstanding that a number of the Shares are held back solely for the purpose of satisfying the withholding obligation for Tax-Related Items.

 

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Finally, Optionee agrees to pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold or account for as a result of Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if Optionee fails to comply with Optionee’s obligations in connection with the Tax-Related Items.

(c) Notice of Disqualifying Disposition of ISO Shares. If Optionee is subject to Tax-Related Items in the United States and sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two (2) years after the grant date, or (ii) one (1) year after the exercise date, Optionee will immediately notify the Company in writing of such disposition. Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out any wages or other cash compensation paid to Optionee by the Company and/or the Employer.

9. Nature of Grant. By accepting the Option, Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Option is exceptional, 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;

(c) all decisions with respect to future options or other grants, if any, will be at the sole discretion of the Company;

(d) Optionee is voluntarily participating in the Plan;

(e) the Option and Optionee’s participation in the Plan will not create a right to employment or be interpreted as forming or amending an employment or service contract with the Company or the Employer, and will not interfere with the ability of the Company or the Employer, as applicable, to terminate Optionee’s employment or service relationship (if any);

(f) the Option and the Shares subject to the Option, and the income and value of same, are not intended to replace any pension rights or compensation;

(g) the Option and the Shares subject to the Option, and the income and value of same, are not part of normal or expected compensation for any purpose, 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;

(h) unless otherwise agreed with the Company, the Option, and the Shares subject to the Option, and the income and value of same, are not granted as consideration for, or in connection with, the service Optionee may provide as a director of a Parent, Subsidiary, or Affiliate;

(i) the future value of the Shares underlying the Option is unknown, indeterminable, and cannot be predicted with certainty; if the underlying Shares do not increase in value, the Option will have no value; if Optionee exercises the Option and acquires Shares, the value of such Shares may increase or decrease, even below the Exercise Price;

 

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(j) no claim or entitlement to compensation or damages will arise from forfeiture of the Option resulting from Optionee’s termination of Service (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 Optionee is employed or the terms of Optionee’s employment agreement, if any), and in consideration of the grant of the Option to which Optionee is otherwise not entitled, Optionee irrevocably agrees never to institute any claim against the Employer, the Company, and any Parent, Subsidiary, or Affiliate; waives his or her ability, if any, to bring any such claim; and releases the Employer, the Company, and any Parent, Subsidiary, or Affiliate 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, Optionee will be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the 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

(l) neither the Employer, the Company, or any Parent, Subsidiary or Affiliate will be liable for any foreign exchange rate fluctuation between Optionee’s local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Optionee pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercise.

(m) the following provisions apply only if Optionee is providing services outside the United States:

 

  (i)

the Option and the Shares subject to the Option are not part of normal or expected compensation or salary for any purpose; and

 

  (ii)

Optionee acknowledges and agrees that neither the Company, the Employer nor any Parent or Subsidiary or Affiliate will be liable for any foreign exchange rate fluctuation between Optionee’s local currency and the United States Dollar that may affect the value of the Option or of any amounts due to Optionee pursuant to the exercise of the Option or the subsequent sale of any Shares acquired upon exercised

10. No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Optionee’s participation in the Plan or Optionee’s acquisition or sale of the underlying Shares. Optionee acknowledges, understands, and agrees that he or she should consult with his or her own personal tax, legal, and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

11. Language. If Optionee has received this Option Agreement, or any other document related to the Option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

12. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Optionee’s participation in the Plan, on the Option, and on any Shares purchased upon exercise of the Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

13. Acknowledgement. The Company and Optionee agree that the Option is granted under and governed by the Notice, this Option Agreement and the Plan (incorporated herein by reference). Optionee: (a) acknowledges receipt of a copy of the Plan and the Plan prospectus, (b) represents that Optionee has carefully read and is familiar with their provisions, and (c) hereby accepts the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

 

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14. Entire Agreement; Enforcement of Rights. This Option Agreement, the Plan, and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments, or negotiations concerning the purchase of the Shares hereunder are superseded. No adverse modification of, or adverse amendment to, this Option Agreement, nor any waiver of any rights under this Option Agreement, will be effective unless in writing and signed by the parties to this Option Agreement (which writing and signing may be electronic). The failure by either party to enforce any rights under this Option Agreement will not be construed as a waiver of any rights of such party.

15. Compliance with Laws and Regulations. The issuance of Shares and the sale of Shares will be subject to and conditioned upon compliance by the Company and Optionee with all applicable state, federal, local and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Shares may be listed or quoted at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Common Stock with any state, federal, or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, Optionee agrees that the Company will have unilateral authority to amend the Plan and this Option Agreement without Optionee’s consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this Option Agreement will be endorsed with appropriate legends, if any, determined by the Company.

16. Severability. If one or more provisions of this Option Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision will be excluded from this Option Agreement, (b) the balance of this Option Agreement will be interpreted as if such provision were so excluded and (c) the balance of this Option Agreement will be enforceable in accordance with its terms.

17. Governing Law and Venue. This Option Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to such state’s conflict of laws rules.

Any and all disputes relating to, concerning or arising from this Option Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the Plan or this Option Agreement, will be brought and heard exclusively in the United States District Court for the District of Northern California or the Santa Clara Superior Court, Santa Clara County. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning, or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning, or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.

18. No Rights as Employee, Director or Consultant. Nothing in this Option Agreement will affect in any manner whatsoever any right or power of the Employer or the Company to terminate Optionee’s Service, for any reason, with or without Cause.

19. Lock-Up Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, Optionee hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired

 

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(other than those included in the registration), except pursuant to a transfer for no consideration in accordance with Section 6 above, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any Financial Industry Regulatory Authority rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

20. Consent to Electronic Delivery of All Plan Documents and Disclosures. By Optionee’s acceptance of the Notice (whether in writing or electronically), Optionee and the Company agree that the Option is granted under and governed by the terms and conditions of the Plan, the Notice, and this Option Agreement. Optionee has reviewed the Plan, the Notice, and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Notice and Agreement, and fully understands all provisions of the Plan, the Notice, and this Option Agreement. Optionee hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice, and this Option Agreement. Optionee further agrees to notify the Company upon any change in Optionee’s residence address. By acceptance of the Option, Optionee agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company and consents to the electronic delivery of the Notice, this Option Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements), or other communications or information related to the Option and current or future participation in the Plan. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail, or such other delivery determined at the Company’s discretion. Optionee acknowledges that Optionee may receive from the Company a paper copy of any documents delivered electronically at no cost if Optionee contacts the Company by telephone, through a postal service, or electronic mail to Stock Administration. Optionee further acknowledges that Optionee will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Optionee understands that Optionee must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Optionee understands that Optionee’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Optionee 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 to Stock Administration. Finally, Optionee understands that Optionee is not required to consent to electronic delivery if local laws prohibit such consent.

21. Insider Trading Restrictions/Market Abuse Laws. Optionee acknowledges that, depending on Optionee’s country, Optionee may be subject to insider trading restrictions and/or market abuse laws, which may affect Optionee’s ability to acquire or sell the Shares or rights to Shares under the Plan during such times as Optionee is considered to have “inside information” regarding the Company (as defined by the laws in Optionee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Optionee acknowledges that it is Optionee’s responsibility to comply with any applicable restrictions and understands that Optionee should consult his or her personal legal advisor on such matters. In addition, Optionee acknowledges that he or she has read the Company’s Insider Trading Policy, and agrees to comply with such policy, as it may be amended from time to time, whenever Optionee acquires or disposes of the Company’s securities.

 

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22. Award Subject to Company Clawback or Recoupment. To the extent permitted by applicable law, the Option will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Optionee’s employment or other Service that is applicable to Optionee. In addition to any other remedies available under such policy and applicable law, the Company may require the cancellation of Optionee’s Option (whether vested or unvested) and the recoupment of any gains realized with respect to Optionee’s Option.

BY ACCEPTING THIS OPTION, OPTIONEE AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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BILL.COM, INC.

2019 EQUITY INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT AWARD

Unless otherwise defined herein, the terms defined in the Bill.Com, Inc. (the “Company”) 2019 Equity Incentive Plan (the “Plan”) will have the same meanings in this Notice of Restricted Stock Unit Award and the electronic representation of this Notice of Restricted Stock Unit Award established and maintained by the Company or a third party designated by the Company (this “Notice”).

Name:

Address:

You (the “Participant”) have been granted an award of Restricted Stock Units (“RSUs”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement (the “Agreement”).

 

                 Grant Number:  
  Number of RSUs:  
  Date of Grant:  
  Vesting Commencement Date:  
  Expiration Date:   The earlier to occur of: (a) the date on which settlement of all RSUs granted hereunder occurs, and (b) the tenth anniversary of the Date of Grant. This RSU expires earlier if Participant’s Service terminates earlier, as described in the Agreement.
  Vesting Schedule:   Subject to the limitations set forth in this Notice, the Plan, and the Agreement, the RSUs will vest in accordance with the following schedule: [insert applicable vesting schedule, which may include performance metrics]

By accepting (whether in writing, electronically or otherwise) the RSUs, Participant acknowledges and agrees to the following:

 

  1)

Participant understands that Participant’s Service is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), except where otherwise prohibited by applicable law, and that nothing in this Notice, the Agreement, or the Plan changes the nature of that relationship. Participant acknowledges that the vesting of the RSUs pursuant to this Notice is subject to Participant’s continuing Service. Participant agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Participant’s Service status changes between full- and part-time and/or in the event the Participant is on a leave of absence, in accordance with Company policies relating to work schedules and vesting of Awards or as determined by the Committee.

 

  2)

This grant is made under and governed by the Plan, the Agreement, and this Notice, and this Notice is subject to the terms and conditions of the Agreement and the Plan, both of which are incorporated herein by reference. Participant has read the Notice, the Agreement, and the Plan.

 

  3)

Participant has read the Company’s Insider Trading Policy, and agrees to comply with such policy, as it may be amended from time to time, whenever Participant acquires or disposes of the Company’s securities.

 

  4)

By accepting the RSUs, Participant consents to electronic delivery and participation as set forth in the Agreement.


PARTICIPANT      BILL.COM, INC.

Signature:

 

                                                                                  

 

        

  

By:

  

                                                                                  

Print Name:

 

                                                                                  

    

Its:

  

                                                                                  

 

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BILL.COM, INC.

2019 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

Unless otherwise defined in this Restricted Stock Unit Award Agreement (this “Agreement”), any capitalized terms used herein will have the same meaning ascribed to them in the Bill.Com, Inc. 2019 Equity Incentive Plan (the “Plan”).

Participant has been granted Restricted Stock Units (“RSUs”) subject to the terms, restrictions, and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “Notice”), and this Agreement. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of the Notice or this Agreement, the terms and conditions of the Plan will prevail.

1. Settlement. Settlement of RSUs shall be made in the same calendar year as the applicable date of vesting under the vesting schedule set forth in the Notice; provided, however, that if a vesting date under the vesting schedule set forth in the Notice occurs in December, then settlement of any RSUs that vest in December shall be made within 30 days of vesting. Settlement of RSUs shall be in Shares. Settlement means the delivery to Participant of the Shares vested under the RSUs. No fractional RSUs or rights for fractional Shares will be created pursuant to this Agreement.

2. No Stockholder Rights. Unless and until such time as Shares are issued in settlement of vested RSUs, Participant will have no ownership of the Shares allocated to the RSUs and will have no rights to dividends or to vote such Shares.

3. Dividend Equivalents. Dividend equivalents, if any (whether in cash or Shares), will not be credited to Participant, except as permitted by the Committee.

4. Non-Transferability of RSUs. The RSUs and any interest therein will not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws of descent or distribution or court order or unless otherwise permitted by the Committee on a case-by-case basis.

5. Termination; Leave of Absence; Change in Status. If Participant’s Service terminates for any reason, all unvested RSUs will be forfeited to the Company immediately, and all rights of Participant to such RSUs automatically terminate without payment of any consideration to Participant. Participant’s Service will be considered terminated as of the date Participant is no longer providing services (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or the terms of Participant’s employment agreement, if any) and will not, subject to the laws applicable to Participant’s Award, be extended by any notice period mandated under local laws (e.g., Service would not include a period of “garden leave” or similar period). Participant acknowledges and agrees that the Vesting Schedule may change prospectively in the event Participant’s service status changes between full- and part-time status and/or in the event Participant is on an approved leave of absence in accordance the Company’s policies relating to work schedules and vesting of awards or as determined by the Committee. Participant acknowledges that the vesting of the Shares pursuant to this Notice and Agreement is subject to Participant’s continued Service. In case of any dispute as to whether termination of Service has occurred, the Committee will have sole discretion to determine whether such termination of Service has occurred and the effective date of such termination (including whether Participant may still be considered to be providing services while on an approved leave of absence).


6. Taxes.

(a) Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company or, if different, a Parent, Subsidiary or Affiliate employing or retaining Participant (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan and legally applicable to Participant (“Tax-Related Items”) is and remains Participant’s responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. Participant further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including, but not limited to, the grant, vesting or settlement of the RSUs and the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends, and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant is subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. PARTICIPANT SHOULD CONSULT A TAX ADVISER APPROPRIATELY QUALIFIED IN THE COUNTRY OR COUNTRIES IN WHICH PARTICIPANT RESIDES OR IS SUBJECT TO TAXATION.

(b) Withholding. Prior to any relevant taxable or tax withholding event, as applicable, Participant agrees to make arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any withholding obligations for Tax-Related Items by one or a combination of the following:

 

  (i)

withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer; or

 

  (ii)

withholding from proceeds of the sale of Shares acquired upon settlement of the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on Participant’s behalf pursuant to this authorization and without further consent);

 

  (iii)

withholding Shares to be issued upon settlement of the RSUs, provided the Company only withholds the number of Shares necessary to satisfy no more than the maximum applicable statutory withholding amounts;

 

  (iv)

Participant’s payment of a cash amount (including by check representing readily available funds or a wire transfer); or

 

  (v)

any other arrangement approved by the Committee and permitted under applicable law;

all under such rules as may be established by the Committee and in compliance with the Company’s Insider Trading Policy and 10b5-1 Trading Plan Policy, if applicable; provided however, that if Participant is a Section 16 officer of the Company under the Exchange Act, then the method of withholding shall be a mandatory sale (unless the Committee (as constituted in accordance with Rule 16b-3 under the Exchange Act) shall establish an alternate method prior to the taxable or withholding event).

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable statutory withholding rates or other applicable withholding rates, including up to the maximum permissible statutory rate for Participant’s tax jurisdiction(s) in which case Participant will have no entitlement to the equivalent amount in Shares and will receive a refund of any over-withheld

 

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amount in cash in accordance with applicable law. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Participant is deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of satisfying the withholding obligation for Tax-Related Items.

Finally, Participant agrees to pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold or account for as a result of Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Company has no obligation to deliver Shares or proceeds from the sale of Shares to Participant until Participant has satisfied the obligations in connection with the Tax-Related Obligations as described in this Section.

7. Nature of Grant. By accepting the RSUs, Participant acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the RSUs is exceptional, voluntary, and occasional, and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past;

(c) all decisions with respect to future RSUs or other grants, if any, will be at the sole discretion of the Company;

(d) Participant is voluntarily participating in the Plan;

(e) the RSUs and Participant’s participation in the Plan will not create a right to employment or be interpreted as forming or amending an employment or service contract with the Company or the Employer and will not interfere with the ability of the Company or the Employer, as applicable, to terminate Participant’s employment or service relationship (if any);

(f) the RSUs and the Shares subject to the RSUs, and the income and value of same, are not intended to replace any pension rights or compensation;

(g) the RSUs and the Shares subject to the RSUs, and the income and value of same, are not part of normal or expected compensation for any purpose, 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;

(h) unless otherwise agreed with the Company, the RSUs, and the Shares subject to the RSUs, and the income and value of same, are not granted as consideration for, or in connection with, the service Participant may provide as a director of a Parent, Subsidiary, or Affiliate;

(i) the future value of the underlying Shares is unknown, indeterminable, and cannot be predicted with certainty;

(j) no claim or entitlement to compensation or damages will arise from forfeiture of the RSUs resulting from Participant’s termination of Service (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 employed or the terms of Participant’s employment agreement, if any), and in consideration

 

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of the grant of the RSUs to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Employer, the Company, and any Parent, Subsidiary or Affiliate; waives his or her ability, if any, to bring any such claim; and releases the Employer, the Company, and any Parent, Subsidiary, or Affiliate 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 will be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs 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

(l) the following provisions apply only if Participant is providing services outside the United States:

 

  (i)

the RSUs and the Shares subject to the RSUs are not part of normal or expected compensation or salary for any purpose;

(ii) Participant acknowledges and agrees that neither the Company, the Employer nor any Parent or Subsidiary or Affiliate will be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar that may affect the value of the RSUs or of any amounts due to Participant pursuant to the settlement of the RSUs or the subsequent sale of any Shares acquired upon settlement.

8. No Advice Regarding Grant. The Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan, or Participant’s acquisition or sale of the underlying Shares. Participant acknowledges, understands and agrees he or she should 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.

9. Language. If Participant has received this Agreement or any other document related to the RSU and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

10. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant’s participation in the Plan, on the RSUs and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

11. Acknowledgement. The Company and Participant agree that the RSUs are granted under and governed by the Notice, this Agreement, and the Plan (incorporated herein by reference). Participant: (a) acknowledges receipt of a copy of the Plan and the Plan prospectus, (b) represents that Participant has carefully read and is familiar with their provisions, and (c) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

12. Entire Agreement; Enforcement of Rights. This Agreement, the Plan, and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments, or negotiations concerning the purchase of the Shares hereunder are superseded. No adverse modification of or adverse amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the parties to this Agreement (which writing and signing may be electronic). The failure by either party to enforce any rights under this Agreement will not be construed as a waiver of any rights of such party.

 

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13. Compliance with Laws and Regulations. The issuance of Shares and the sale of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state, federal, local and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Shares may be listed or quoted at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Common Stock with any state, federal, or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the Shares. Further, Participant agrees that the Company will have unilateral authority to amend the Plan and this RSU Agreement without Participant’s consent to the extent necessary to comply with securities or other laws applicable to issuance of Shares. Finally, the Shares issued pursuant to this RSU Agreement will be endorsed with appropriate legends, if any, determined by the Company.

14. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision will be excluded from this Agreement, (b) the balance of this Agreement will be interpreted as if such provision were so excluded and (c) the balance of this Agreement will be enforceable in accordance with its terms.

15. Governing Law and Venue. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto will be governed, construed, and interpreted in accordance with the laws of the State of Delaware, without giving effect to such state’s conflict of laws rules.

Any and all disputes relating to, concerning or arising from this Option Agreement, or relating to, concerning or arising from the relationship between the parties evidenced by the Plan or this Option Agreement, will be brought and heard exclusively in the United States District Court for the District of Northern California or the Santa Clara Superior Court, Santa Clara County. Each of the parties hereby represents and agrees that such party is subject to the personal jurisdiction of said courts; hereby irrevocably consents to the jurisdiction of such courts in any legal or equitable proceedings related to, concerning, or arising from such dispute, and waives, to the fullest extent permitted by law, any objection which such party may now or hereafter have that the laying of the venue of any legal or equitable proceedings related to, concerning, or arising from such dispute which is brought in such courts is improper or that such proceedings have been brought in an inconvenient forum.

16. No Rights as Employee, Director or Consultant. Nothing in this Agreement shall create a right to employment or other Service or be interpreted as forming or amending an employment, service contract or relationship with the Company and this Agreement shall not affect in any manner whatsoever any right or power of the Company, or a Parent, Subsidiary or Affiliate, to terminate Participant’s Service, for any reason, with or without Cause.

17. Consent to Electronic Delivery of All Plan Documents and Disclosures. By Participant’s acceptance of the Notice (whether in writing or electronically), Participant and the Company agree that the RSUs are granted under and governed by the terms and conditions of the Plan, the Notice, and this Agreement. Participant has reviewed the Plan, the Notice, and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and Agreement, and fully understands all provisions of the Plan, the Notice, and this Agreement. Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee upon any questions

 

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relating to the Plan, the Notice, and this Agreement. Participant further agrees to notify the Company upon any change in Participant’s residence address. By acceptance of the RSUs, Participant agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company and consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the U.S. Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements), or other communications or information related to the RSUs and current or future participation in the Plan. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail, or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service, or electronic mail to Stock Administration. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service, or electronic mail to Stock Administration. Finally, Participant understands that Participant is not required to consent to electronic delivery if local laws prohibit such consent.

18. Insider Trading Restrictions/Market Abuse Laws. Participant acknowledges that, depending on Participant’s country, Participant may be subject to insider trading restrictions and/or market abuse laws, which may affect Participant’s ability to acquire or sell the Shares or rights to Shares under the Plan during such times as Participant is considered to have “inside information” regarding the Company (as defined by the laws in Participant’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Participant acknowledges that it is Participant’s responsibility to comply with any applicable restrictions and understands that Participant should consult his or her personal legal advisor on such matters. In addition, Participant acknowledges that he or she read the Company’s Insider Trading Policy, and agrees to comply with such policy, as it may be amended from time to time, whenever Participant acquires or disposes of the Company’s securities.

19. Code Section 409A. For purposes of this Agreement, a termination of employment will be determined consistent with the rules relating to a “separation from service” as defined in Section 409A of the Internal Revenue Code and the regulations thereunder (“Section 409A”). Notwithstanding anything else provided herein, to the extent any payments provided under this RSU Agreement in connection with Participant’s termination of employment constitute deferred compensation subject to Section 409A, and Participant is deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payment will not be made or commence until the earlier of (a) the expiration of the six (6) month period measured from Participant’s separation from service to the Employer or the Company, or (b) the date of Participant’s death following such a separation from service; provided, however, that such deferral will 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. To the extent any payment under this RSU Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment will be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this section are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

 

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20. Lock-Up Agreement. In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, Participant hereby agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration), except pursuant to a transfer for no consideration in accordance with Section 4 above, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any Financial Industry Regulatory Authority rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. In no event will the restricted period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

21. Award Subject to Company Clawback or Recoupment. To the extent permitted by applicable law, the RSUs will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by the Board or required by law during the term of Participant’s employment or other Service that is applicable to Participant. In addition to any other remedies available under such policy and applicable law, the Company may require the cancellation of Participant’s RSUs (whether vested or unvested) and the recoupment of any gains realized with respect to Participant’s RSUs.

BY ACCEPTING THIS AWARD OF RSUS, PARTICIPANT AGREES TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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Exhibit 10.5

BILL.COM HOLDINGS, INC.

2019 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE. Bill.Com Holdings, Inc. adopted the Plan effective as of the Effective Date. The purpose of this Plan is to provide eligible employees of the Company and the Participating Corporations with a means of acquiring an equity interest in the Company, to enhance such employees’ sense of participation in the affairs of the Company. Capitalized terms not defined elsewhere in the text are defined in Section 28.

2. ESTABLISHMENT OF PLAN. The Company proposes to grant rights to purchase shares of Common Stock to eligible employees of the Company and its Participating Corporations pursuant to this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed, although the Company makes no undertaking or representation to maintain such qualification. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. In addition, with regard to offers of options to purchase shares of Common Stock under the Plan to employees working for a Subsidiary or an Affiliate outside the United States, this Plan authorizes the grant of options under a Non- Section 423 Component that is not intended to meet Section 423 requirements, provided, to the extent necessary under Section 423 of the Code, the other terms and conditions of the Plan are met.

Subject to Section 14, a total of One Million Four Hundred Thousand (1,400,000) shares of Common Stock is reserved for issuance under this Plan. In addition, on each July 1 of each fiscal year, the aggregate number of shares of Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares equal to one percent (1%) of the total number of outstanding shares of Common Stock and shares of preferred stock of the Company outstanding (on an as converted to common stock basis) on the immediately preceding June 30th (rounded down to the nearest whole share); provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year. Subject to Section 14, no more than Fourteen Million (14,000,000) shares of Common Stock may be issued over the term of this Plan. The number of shares initially reserved for issuance under this Plan and the maximum number of shares that may be issued under this Plan shall be subject to adjustments effected in accordance with Section 14. Any or all such shares may be granted under the Section 423 Component.

3. ADMINISTRATION. The Plan will be administered by the Committee. Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all eligible employees and Participants. The Committee will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility, to designate the Participating Corporations, to determine whether Participating Corporations shall participate in the Section 423 Component or Non-Section 423 Component and to decide upon any and all claims filed under the Plan. Every finding, decision and determination made by the Committee will, to the full extent permitted by law, be final and binding upon all parties. Notwithstanding any provision to the contrary in this Plan, the Committee may adopt rules, sub-plans, and/or procedures relating to the operation and administration of the Plan designed to comply with local laws, regulations or customs or to achieve tax, securities law or other objectives for eligible employees outside of the United States. The Committee will have the authority to determine the Fair Market Value of the Common Stock (which determination shall be final, binding and conclusive for all purposes) in accordance with Section 8 below and to interpret Section 8 of the Plan in connection with circumstances that impact the Fair Market Value. Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All


expenses incurred in connection with the administration of this Plan shall be paid by the Company. For purposes of this Plan, the Committee may designate separate offerings under the Plan (the terms of which need not be identical) in which eligible employees of one or more Participating Corporations will participate, and the provisions of the Plan will separately apply to each such separate offering even if the dates of the applicable Offering Periods of each such offering are identical. To the extent permitted by Section 423 of the Code, the terms of each separate offering under the Plan need not be identical, provided that the rights and privileges established with respect to a particular offering are applied in an identical manner to all employees of every Participating Corporation whose employees are granted options under that particular offering. The Committee may establish rules to govern the terms of the Plan and the offering that will apply to Participants who transfer employment between the Company and Participating Corporations or between Participating Corporations, in accordance with requirements under Section 423 of the Code to the extent applicable.

4. ELIGIBILITY.

(a) Any employee of the Company or the Participating Corporations is eligible to participate in an Offering Period under this Plan, except that one or more of the following categories of employees shall be excluded from coverage under the Plan by the Committee (other than where such exclusion is prohibited by applicable law):

(i) employees who do not meet eligibility requirements that the Committee may choose to impose (within the limits permitted by the Code); and

(ii) individuals who provide services to the Company or any of its Participating Corporations who are reclassified as common law employees for any reason except for federal income and employment tax purposes.

The foregoing notwithstanding, an individual shall not be eligible if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her, if complying with the laws of the applicable country would cause the Plan to violate Section 423 of the Code, or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.

(b) No employee who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, owns stock or holds options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary shall be granted an option to purchase Common Stock under the Plan. Notwithstanding the foregoing, the rules of Section 424(d) of the Code shall apply in determining share ownership and the extent to which shares held under outstanding equity awards are to be treated as owned by the employee.

5. OFFERING DATES.

(a) Each Offering Period of this Plan may be of up to twenty-seven (27) months duration and shall commence and end at the times designated by the Committee. Each Offering Period shall consist of one or more Purchase Periods during which Contributions made by Participants are accumulated under this Plan.

(b) The initial Offering Period shall commence on the Effective Date and shall end with the Purchase Date that occurs on a date selected by the Committee which is no more than twenty-seven (27) months after the commencement of the initial Offering period. The initial Offering Period may consist of one to four Purchase Periods. Thereafter, a new Offering Period shall commence on such

 

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date selected by the Committee, with each such Offering Period also consisting of one to four separate six (6)-month Purchase Periods, except as otherwise provided by an applicable sub-plan, or on such other date determined by the Committee. The Committee may at any time establish a different duration for an Offering Period or Purchase Period to be effective after the next scheduled Purchase Date, up to a maximum duration of twenty-seven (27) months.

6. PARTICIPATION IN THIS PLAN.

(a) Any employee who is an eligible employee determined in accordance with Section 4 immediately prior to the initial Offering Period will be automatically enrolled in the initial Offering Period under this Plan for the maximum number of shares of Common Stock purchasable. With respect to subsequent Offering Periods, any eligible employee determined in accordance with Section 4 will be eligible to participate in this Plan, subject to the requirement of Section 6(b) hereof and the other terms and provisions of this Plan.

(b) With respect to Offering Periods after the initial Offering Period, a Participant may elect to participate in this Plan by submitting an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

(c) Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of the prior Offering Period unless the Participant withdraws or is deemed to withdraw from this Plan or terminates further participation in an Offering Period as set forth in Section 11 below. A Participant who is continuing participation pursuant to the preceding sentence is not required to file any additional enrollment agreement in order to continue participation in this Plan; a Participant who is not continuing participation pursuant to the preceding sentence is required to file an enrollment agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

7. GRANT OF OPTION ON ENROLLMENT. Becoming a Participant with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such Participant of an option to purchase on the Purchase Date up to that number of shares of Common Stock determined by a fraction, the numerator of which is the amount accumulated for such Participant’s Contribution book account during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Offering Date (but in no event less than the par value of a share of the Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Purchase Date; provided, however, that for the Purchase Period within the initial Offering Period the numerator shall be fifteen percent (15%) of the Participant’s compensation for such Purchase Period, or such lower percentage as determined by the Committee prior to the start of the Offering Period, and provided, further, that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(b) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Purchase Date.

8. PURCHASE PRICE. The Purchase Price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

(a) The Fair Market Value on the Offering Date; or

(b) The Fair Market Value on the Purchase Date.

 

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9. PAYMENT OF PURCHASE PRICE; CONTRIBUTION CHANGES; SHARE ISSUANCES.

(a) The Purchase Price shall be accumulated by regular payroll deductions made during each Offering Period, unless the Committee determines that contributions may be made in another form (including but not limited to with respect to categories of Participants outside the United States that Contributions may be made in another form due to local legal requirements). The Contributions are made as a percentage of the Participant’s Compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set by the Committee. “Compensation” shall mean base salary or regular hourly wages; however, the Committee shall have discretion to adopt a definition of Compensation from time to time of all cash compensation reported on the employee’s Form W-2 or corresponding local country tax return, including without limitation base salary or regular hourly wages, bonuses, incentive compensation, commissions, overtime, shift premiums, pay during leaves of absence, and draws against commissions (or in foreign jurisdictions, equivalent cash compensation). For purposes of determining a Participant’s Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code (or in foreign jurisdictions, equivalent deductions) shall be treated as if the Participant did not make such election. Contributions shall commence on the first payday following the last Purchase Date (with respect to the initial Offering Period, as soon as practicable following the effective date of filing with the U.S. Securities and Exchange Commission a securities registration statement for the Plan) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan. Notwithstanding the foregoing, the terms of any sub-plan may permit matching shares without the payment of any purchase price.

(b) A Participant may decrease the rate of Contributions during an Offering Period by filing with the Company or a third party designated by the Company a new authorization for Contributions, with the new rate to become effective no later than the second payroll period commencing after the Company’s receipt of the authorization and continuing for the remainder of the Offering Period unless changed as described below. A decrease in the rate of Contributions may be made twice during the initial Offering Period and once during any subsequent Offering Periods, or more frequently under rules determined by the Committee. A Participant may increase or decrease the rate of Contributions for any subsequent Offering Period by filing with the Company or a third party designated by the Company a new authorization for Contributions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.

(c) A Participant may reduce his or her Contribution percentage to zero during an Offering Period by filing with the Company or a third party designated by the Company a request for cessation of Contributions. Such reduction shall be effective beginning no later than the second payroll period after the Company’s receipt of the request and no further Contributions will be made for the duration of the Offering Period. Contributions credited to the Participant’s account prior to the effective date of the request shall be used to purchase shares of Common Stock in accordance with Subsection (e) below. A reduction of the Contribution percentage to zero shall be treated as such Participant’s withdrawal from such Offering Period and the Plan, effective as of the day after the next Purchase Date following the filing date of such request with the Company.

(d) All Contributions made for a Participant are credited to his or her book account under this Plan and are deposited with the general funds of the Company, except to the extent local legal restrictions outside the United States require segregation of such Contributions. No interest accrues on the Contributions, except to the extent required due to local legal requirements. All Contributions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions, except to the extent necessary to comply with local legal requirements outside the United States.

 

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(e) On each Purchase Date, so long as this Plan remains in effect and provided that the Participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the Participant wishes to withdraw from that Offering Period under this Plan and have all Contributions accumulated in the account maintained on behalf of the Participant as of that date returned to the Participant, the Company shall apply the funds then in the Participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such Participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date. The Purchase Price per share shall be as specified in Section 8 of this Plan. Any fractional share, as calculated under this Subsection (e), shall be rounded down to the next lower whole share, unless the Committee determines with respect to all Participants that any fractional share shall be credited as a fractional share. Any amount remaining in a Participant’s account on a Purchase Date which is less than the amount necessary to purchase a full share of the Common Stock shall be carried forward without interest (except to the extent necessary to comply with local legal requirements outside the United States) into the next Purchase Period or Offering Period, as the case may be; however, the Committee may determine that such amounts should be refunded without interest. In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States). No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date, except to the extent required due to local legal requirements outside the United States.

(f) As promptly as practicable after the Purchase Date, the Company shall issue shares for the Participant’s benefit representing the shares purchased upon exercise of his or her option.

(g) During a Participant’s lifetime, his or her option to purchase shares hereunder is exercisable only by him or her. The Participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

(h) To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company and the Participating Corporation employing the Participant for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company or any Subsidiary or Affiliate, as applicable, may withhold, by any method permissible under the applicable law, the amount necessary for the Company or Subsidiary or Affiliate, as applicable, to meet applicable withholding obligations, including any withholding required to make available to the Company or Subsidiary or Affiliate, as applicable, any tax deductions or benefits attributable to the sale or early disposition of shares of Common Stock by a Participant. The Company shall not be required to issue any shares of Common Stock under the Plan until such obligations are satisfied.

10. LIMITATIONS ON SHARES TO BE PURCHASED.

(a) Any other provision of the Plan notwithstanding, no Participant shall purchase Common Stock with a Fair Market Value in excess of the following limit:

(i) In the case of Common Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary).

(ii) In the case of Common Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary) in the current calendar year and in the immediately preceding calendar year.

 

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(iii) In the case of Common Stock purchased during an Offering Period that commenced two calendar years prior, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any Parent or Subsidiary) in the current calendar year and in the two immediately preceding calendar years.

For purposes of this Subsection (a), the Fair Market Value of Common Stock shall be determined in each case as of the beginning of the Offering Period in which such Common Stock is purchased. Employee stock purchase plans not described in Section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (a) from purchasing additional Common Stock under the Plan, then his or her Contributions shall automatically be discontinued and shall automatically resume at the beginning of the earliest Purchase Period that will end in the next calendar year (if he or she then is an eligible employee), provided that when the Company automatically resumes such Contributions, the Company must apply the rate in effect immediately prior to such suspension.

(b) In no event shall a Participant be permitted to purchase more than Five thousand (5,000) shares on any one Purchase Date or such lesser number as the Committee shall determine. If a lower limit is set under this Subsection (b), then all Participants will be notified of such limit prior to the commencement of the next Offering Period for which it is to be effective.

(c) If the number of shares to be purchased on a Purchase Date by all Participants exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company will give notice of such reduction of the number of shares to be purchased under a Participant’s option to each Participant affected.

(d) Any Contributions accumulated in a Participant’s account which are not used to purchase stock due to the limitations in this Section 10, and not covered by Section 9(e), shall be returned to the Participant as soon as practicable after the end of the applicable Purchase Period, without interest (except to the extent required due to local legal requirements outside the United States).

11. WITHDRAWAL.

(a) Each Participant may withdraw from an Offering Period under this Plan pursuant to a method specified for such purpose by the Company. Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.

(b) Upon withdrawal from this Plan, the accumulated Contributions shall be returned to the withdrawn Participant, without interest (except to the extent required due to local legal requirements outside the United States), and his or her interest in this Plan shall terminate. In the event a Participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for Contributions in the same manner as set forth in Section 6 above for initial participation in this Plan.

(c) To the extent applicable, if the Fair Market Value on the first day of the current Offering Period in which a participant is enrolled is higher than the Fair Market Value on the first day of any subsequent Offering Period, the Company will automatically enroll such participant in the subsequent Offering Period. Any funds accumulated in a Participant’s account prior to the first day of such subsequent Offering Period will be applied to the purchase of shares on the Purchase Date immediately prior to the first day of such subsequent Offering Period, if any.

 

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12. TERMINATION OF EMPLOYMENT. Termination of a Participant’s employment for any reason, including retirement, death, disability, or the failure of a Participant to remain an eligible employee of the Company or of a Participating Corporation, immediately terminates his or her participation in this Plan (except as required due to local legal requirements outside the United States). In such event, accumulated Contributions credited to the Participant’s account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest (except to the extent required due to local legal requirements outside the United States). For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Corporation in the case of sick leave, military leave, or any other leave of absence approved by the Company; provided that such leave is for a period of not more than three (3) months or reemployment upon the expiration of such leave is guaranteed by contract or statute. The Company will have sole discretion to determine whether a Participant has terminated employment and the effective date on which the Participant terminated employment, regardless of any notice period or garden leave required under local law.

13. RETURN OF CONTRIBUTIONS. In the event a Participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the Participant all accumulated Contributions credited to such Participant’s account. No interest shall accrue on the Contributions of a Participant in this Plan (except to the extent required due to local legal requirements outside the United States).

14. CAPITAL CHANGES. If the number of outstanding shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then the Committee shall adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 2 and 10 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with the applicable securities laws; provided that fractions of a share will not be issued.

15. NONASSIGNABILITY. Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

16. USE OF PARTICIPANT FUNDS AND REPORTS. The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be required to segregate Participant Contributions (except to the extent required due to local legal requirements outside the United States). Until shares are issued, Participants will only have the rights of an unsecured creditor unless otherwise required under local law. Each Participant shall receive, or have access to, promptly after the end of each Purchase Period a report of his or her account setting forth the total Contributions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be.

17. NOTICE OF DISPOSITION. Each U.S. taxpayer Participant shall notify the Company in writing if the Participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the “Notice Period”). The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares. The obligation of the Participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

 

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18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Corporation, or restrict the right of the Company or any Participating Corporation to terminate such employee’s employment.

19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees granted an option under the Section 423 Component of this Plan shall have equal rights and privileges with respect to this Plan or within any separate offering under the Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code, without further act or amendment by the Company, the Committee or the Board, shall be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in this Plan.

20. NOTICES. All notices or other communications by a Participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

21. TERM; STOCKHOLDER APPROVAL. This Plan will become effective on the Effective Date. This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board. No purchase of shares that are subject to such stockholder approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Board or Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than six (6) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of such shares and Participants in such Offering Period shall be refunded their Contributions without interest). This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time pursuant to Section 25 below), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) the tenth anniversary of the Effective Date.

22. DESIGNATION OF BENEFICIARY.

(a) If authorized by the Committee, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under this Plan in the event of such Participant’s death prior to a Purchase Date. Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant’s death.

(b) If authorized by the Company, such designation of beneficiary may be changed by the Participant at any time by written notice filed with the Company at the prescribed location before the Participant’s death. In the event of the death of a Participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such Participant’s death, the Company shall deliver such cash to the executor or administrator of the estate of the Participant or to the legal heirs of the Participant.

 

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23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, exchange control restrictions and/or securities law restrictions outside the United States, and shall be further subject to the approval of counsel for the Company with respect to such compliance. Shares may be held in trust or subject to further restrictions as permitted by any subplan.

24. APPLICABLE LAW. The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware.

25. AMENDMENT OR TERMINATION. The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. Unless otherwise required by applicable law, if the Plan is terminated, the Committee, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Purchase Date (which may be sooner than originally scheduled, if determined by the Committee in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 14). If an Offering Period is terminated prior to its previously-scheduled expiration, all amounts then credited to Participants’ book accounts for such Offering Period, which have not been used to purchase shares of Common Stock, shall be returned to those Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. Further, the Committee will be entitled to change the Purchase Periods and Offering Periods, limit the frequency and/or number of changes in the amount contributed during an Offering Period, establish the exchange ratio applicable to amounts contributed in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the administration of the Plan, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts contributed from the Participant’s base salary and other eligible compensation, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. Such actions will not require stockholder approval or the consent of any Participants. However, no amendment shall be made without approval of the stockholders of the Company (obtained in accordance with Section 21 above) within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan. In addition, in the event the Board or Committee determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board or Committee may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequences including, but not limited to: (i) amending the definition of compensation, including with respect to an Offering Period underway at the time; (ii) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (iii) shortening any Offering Period by setting a Purchase Date, including an Offering Period underway at the time of the Committee’s action; (iv) reducing the maximum percentage of Compensation a participant may elect to set aside as Contributions; and (v) reducing the maximum number of shares a Participant may purchase during any Offering Period. Such modifications or amendments will not require approval of the stockholders of the Company or the consent of any Participants.

26. CORPORATE TRANSACTIONS. In the event of a Corporate Transaction, the Offering Period for each outstanding right to purchase Common Stock will be shortened by setting a new Purchase Date and will end on the new Purchase Date. The new Purchase Date shall occur on or prior to the consummation of the Corporate Transaction, as determined by the Board or Committee, and the Plan shall terminate on the consummation of the Corporate Transaction.

 

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27. CODE SECTION 409A; TAX QUALIFICATION.

(a) Options granted under the Plan generally are exempt from the application of Section 409A of the Code. However, options granted to U.S. taxpayers which are not intended to meet the Code Section 423 requirements are intended to be exempt from the application of Section 409A of the Code under the short-term deferral exception and any ambiguities shall be construed and interpreted in accordance with such intent. Subject to Subsection (b), options granted to U.S. taxpayers outside of the Code Section 423 requirements shall be subject to such terms and conditions that will permit such options to satisfy the requirements of the short-term deferral exception available under Section 409A of the Code, including the requirement that the shares of Common Stock subject to an option be delivered within the short-term deferral period. Subject to Subsection (b), in the case of a Participant who would otherwise be subject to Section 409A of the Code, to the extent the Committee determines that an option or the exercise, payment, settlement or deferral thereof is subject to Section 409A of the Code, the option shall be granted, exercised, paid, settled or deferred in a manner that will comply with Section 409A of the Code, including Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the Effective Date. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option that is intended to be exempt from or compliant with Section 409A of the Code is not so exempt or compliant or for any action taken by the Committee with respect thereto.

(b) Although the Company may endeavor to (i) qualify an option for favorable tax treatment under the laws of the United States or jurisdictions outside of the United States or (ii) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Subsection (a). The Company shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.

28. DEFINITIONS.

(a) “Affiliate” means any entity, other than a Subsidiary or Parent, (i) that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) in which the Company has a significant equity interest, in either case as determined by the Committee, whether now or hereafter existing.

(b) “Board” shall mean the Board of Directors of the Company.

(c) “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.

(d) “Committee” shall mean the Compensation Committee of the Board that consists exclusively of one or more members of the Board appointed by the Board.

(e) “Common Stock” shall mean the common stock of the Company.

(f) “Company” shall mean Bill.Com Holdings, Inc.

(g) “Contributions” means payroll deductions taken from a Participant’s Compensation and used to purchase shares of Common Stock under the Plan and, to the extent payroll deductions are not permitted by applicable laws (as determined by the Committee in its sole discretion) contributions by other means, provided, however, that allowing such other contributions does not jeopardize the qualification of the Plan as an “employee stock purchase plan” under Section 423 of the Plan.

 

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(h) “Corporate Transaction” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(i) “Effective Date” shall mean the date on which the Registration Statement covering the initial public offering of the shares of Common Stock is declared effective by the U.S. Securities and Exchange Commission.

(j) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

(k) “Fair Market Value” shall mean, as of any date, the value of a share of Common Stock determined as follows:

i. if such Common Stock is then quoted on the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (collectively, the “Nasdaq Market”), its closing price on the Nasdaq Market on the date of determination, or if there are no sales for such date, then the last preceding business day on which there were sales, as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

ii. if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

iii. if such Common Stock is publicly traded but is neither quoted on the Nasdaq Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

iv. with respect to the initial Offering Period, Fair Market Value on the Offering Date shall be the price at which shares of Common Stock are offered to the public pursuant to the Registration Statement covering the initial public offering of shares of Common Stock; or

v. if none of the foregoing is applicable, by the Board or the Committee in good faith.

(l) “Non-Section 423 Component” means the part of the Plan which is not intended to meet the requirements set forth in Section 423 of the Code.

(m) “Notice Period” shall mean within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased.

(n) “Offering Date” shall mean the first business day of each Offering Period. However, for the initial Offering Period the Offering Date shall be the Effective Date.

 

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(o) “Offering Period” shall mean a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined by the Committee pursuant to Section 5(a).

(p) “Parent” shall have the same meaning as “parent corporation” in Sections 424(e) and 424(f) of the Code.

(q) “Participant” shall mean an eligible employee who meets the eligibility requirements set forth in Section 4 and who is either automatically enrolled in the initial Offering Period or who elects to participate in this Plan pursuant to Section 6(b).

(r) “Participating Corporation” shall mean any Parent, Subsidiary or Affiliate that the Committee designates from time to time as eligible to participate in this Plan. For purposes of the Section 423 Component, only the Parent and Subsidiaries may be Participating Corporations, provided, however, that at any given time a Parent or Subsidiary that is a Participating Corporation under the Section 423 Component shall not be a Participating Corporation under the Non-Section 423 Component. The Committee may provide that any Participating Corporation shall only be eligible to participate in the Non-Section 423 Component.

(s) “Plan” shall mean this Bill.Com, Inc. 2019 Employee Stock Purchase Plan, as may be amended from time to time.

(t) “Purchase Date” shall mean the last business day of each Purchase Period.

(u) “Purchase Period” shall mean a period during which Contributions may be made toward the purchase of Common Stock under the Plan, as determined by the Committee pursuant to Section 5(b).

(v) “Purchase Price” shall mean the price at which Participants may purchase shares of Common Stock under the Plan, as determined pursuant to Section 8.

(w) “Section 423 Component” means the part of the Plan, which excludes the Non-Section 423 Component, pursuant to which options to purchase shares of Common Stock under the Plan that satisfy the requirements for “employee stock purchase plans” set forth in Section 423 of the Code may be granted to eligible employees.

(x) “Subsidiary” shall have the same meaning as “subsidiary corporation” in Sections 424(e) and 424(f) of the Code.

 

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Exhibit 10.6

CHANGE IN CONTROL AND SEVERANCE AGREEMENT

This Change in Control and Severance Agreement (the “Agreement”) is entered into by and between [•] (the “Executive”) and Bill.Com Holdings, Inc., a Delaware corporation (the “Company”)1, on [•], 2019 (the “Effective Date”).

1. Term of Agreement.

Except to the extent renewed as set forth in this Section 1, this Agreement shall terminate the earlier of the third (3rd) anniversary of the Effective Date (the “Expiration Date”) or the date the Executive’s employment with the Company terminates for a reason other than a Qualifying Termination or CIC Qualifying Termination; provided however, if a definitive agreement relating to a Change in Control has been signed by the Company on or before the Expiration Date, then this Agreement shall remain in effect through the earlier of:

(a) The date the Executive’s employment with the Company terminates for a reason other than a Qualifying Termination or CIC Qualifying Termination, or

(b) The date the Company has met all of its obligations under this Agreement following a termination of the Executive’s employment with the Company due to a Qualifying Termination or CIC Qualifying Termination.

This Agreement shall renew automatically and continue in effect for three (3) year periods measured from the initial Expiration Date and each subsequent Expiration Date, unless the Company provides the Executive with notice of non-renewal at least three (3) months prior to the date on which this Agreement would otherwise renew. For the avoidance of doubt, and notwithstanding anything to the contrary in Section 2 or 3 below, the Company’s non-renewal of this Agreement shall not constitute a Qualifying Termination or CIC Qualifying Termination, as applicable.

2. Qualifying Termination. If the Executive is subject to a Qualifying Termination, then, subject to Sections 4, 9, and 10 below, the Executive will be entitled to the following benefits:

(a) Severance Benefits. The Company shall pay the Executive (i) six (6) months’ worth of his or her monthly base salary at the rate in effect at the time of the Separation and (ii) the prorated portion of his or her then-current target bonus opportunity for the portion of the current year that Executive served prior to the Separation (calculated based on the number of full months to date in the bonus year multiplied by 1/12 of the annual target bonus opportunity) at the rate in effect at the time of the Separation. The Executive will receive his or her severance payment in a cash lump-sum in accordance with the Company’s standard payroll procedures, which payment will be made no later than the first regular payroll date occurring after the sixtieth (60th) day following the Separation, but in no event later than March 15th of the calendar year immediately following the calendar year in which the date of the Separation occurs.

(b) Continued Employee Benefits. If the Executive timely elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), the Company shall pay the full amount of Executive’s COBRA premiums on behalf of the Executive for the Executive’s continued coverage under the Company’s health, dental and vision plans, including coverage for the Executive’s eligible dependents, for the same period that the Executive is entitled to severance benefits pursuant to

 

1 

Any reference to the Company will be understood to include any direct or indirect subsidiary of the Company that employs the Executive, including Bill.Com, Inc.


Section 2(a) following the Executive’s Separation or, if earlier, until Executive is eligible to be covered under another substantially equivalent medical insurance plan by a subsequent employer; provided that if the Company determines that it cannot provide the payment of COBRA coverage on behalf of the Executive without violating applicable law or incurring additional expense under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will provide to the Executive in lieu thereof a taxable lump sum payment for the balance of the COBRA period.

(c) Equity Awards. Each of the Executive’s then-outstanding unvested Equity Awards shall be treated in accordance with their terms and the terms of the applicable equity incentive plan. Notwithstanding the foregoing, in the event of a Qualifying Termination that follows a Potential Change in Control and precedes a Change in Control, any then-outstanding unvested Equity Awards shall cease vesting pursuant to their normal vesting schedule on the date of the Qualifying Termination but shall not lapse or be forfeited on such date. Instead, such Equity Awards shall remain outstanding until the three (3)-month anniversary of the date of such termination, and solely in the event a Change in Control subsequently occurs during such period, such Equity Awards shall be treated in accordance with Section 3(c).

3. CIC Qualifying Termination. If the Executive is subject to a CIC Qualifying Termination, then, subject to Sections 4, 9, and 10 below, the Executive will be entitled to the following benefits:

(a) Severance Payments. The Company or its successor shall pay the Executive (i) twelve (12) months’ worth of his or her monthly base salary and target bonus (at the rate in effect immediately prior to the actions that result in a Qualifying Termination) and (ii) the prorated portion of his or her then-current target bonus opportunity for the portion of the current year that Executive served prior to the Separation (calculated based on the number of full months to date in the bonus year multiplied by 1/12 of the annual target bonus opportunity) at the rate in effect at the time of the Separation. Such payment shall be paid in a cash lump sum payment in accordance with the Company’s standard payroll procedures, which payment will be made no later than the first regular payroll date occurring after the sixtieth (60th) day following the Separation, but in no event later than March 15th of the calendar year immediately following the calendar year in which the date of the Separation occurs.

(b) Continued Employee Benefits. If the Executive timely elects continued coverage under COBRA, the Company shall pay the full amount of the Executive’s COBRA premiums on behalf of Executive for the Executive’s continued coverage under the Company’s health, dental and vision plans, including coverage for the Executive eligible dependents, for the same period that the Executive is entitled to severance benefits pursuant to Section 3(a)(i) following the Executive’s Separation or, if earlier, until Executive is eligible to be covered under another substantially equivalent medical insurance plan by a subsequent employer; provided that if the Company determines that it cannot provide the payment of COBRA coverage on behalf of the Executive without violating applicable law or incurring additional expense under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company will provide to the Executive in lieu thereof a taxable lump sum payment for the balance of the COBRA period.

(c) Equity Vesting Acceleration. Each of the Executive’s then outstanding unvested Equity Awards, including awards that would otherwise vest upon satisfaction of performance metrics or other factors other than the continuation of the Executive’s employment with the Company (“Performance-Based Equity Awards”), shall accelerate and become vested and exercisable with respect to 100% of the then-unvested shares subject to all Equity Awards; provided however, that the grant agreement for the Performance-Based Equity Awards may provide for alternative treatment upon a Qualifying CIC

 

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Termination and, absent any such treatment in such grant agreement, the vesting acceleration provided for herein shall be deemed to have been met based on the achievement of the performance award at the greater of actual performance, if determinable, or “at-target” (the “Performance-Based Acceleration”). Subject to Section 4, the accelerated vesting described above shall be effective as of the date of Separation. Notwithstanding anything herein to the contrary, upon a Change in Control in which the successor or acquiring corporation (if any) does not assume, convert, continue, replace or substitute any unvested Equity Awards that are outstanding immediately prior to the Change in Control (including replacing such Equity Awards with substantially comparable cash awards) then, notwithstanding any other provision in the applicable equity incentive plan to the contrary, such Equity Awards shall accelerate vesting as to all shares or cash subject to such Equity Awards immediately prior to such Change in Control, with any Performance-Based Equity Awards to be subject to the treatment set forth in the grant agreement or, absent any such treatment, the Performance-Based Acceleration.

4. General Release. Any other provision of this Agreement notwithstanding, Executive is only eligible for the benefits under Section 2 and 3 if the Executive (i) has executed a general release of all known and unknown claims that he or she may then have against the Company or persons affiliated with the Company and such release has become effective and (ii) has agreed not to prosecute any legal action or other proceeding based upon any of such claims. The release must be in the form prescribed by the Company, without alterations (this document effecting the foregoing, the “Release”). The Company will deliver the form of Release to the Executive within ten (10) days after the Executive’s Separation. The Executive must execute and return the Release within the time period specified in the form and in all events within sixty (60) days following the termination event described in Section 2 or 3, as applicable.

5. Accrued Compensation and Benefits. Notwithstanding anything to the contrary in Section 2 and Section 3 above, in connection with any termination of employment (whether or not a Qualifying Termination or CIC Qualifying Termination), the Company shall pay the Executive’s earned but unpaid base salary and other vested but unpaid cash entitlements for the period through and including the termination of employment, including unused earned vacation pay, if applicable, and unreimbursed documented business expenses incurred by the Executive through and including the date of termination (collectively “Accrued Compensation and Expenses”), as required by law and the applicable Company plan or policy. In addition, the Executive shall be entitled to any other vested benefits earned by the Executive for the period through and including the termination date of the Executive’s employment under any other employee benefit plans and arrangements maintained by the Company, in accordance with the terms of such plans and arrangements, except as modified herein (collectively “Accrued Benefits”). Any Accrued Compensation and Expenses to which the Executive is entitled shall be paid to the Executive in cash as soon as administratively practicable after the termination and, in any event, no later than two and one-half (2 12) months after the end of the taxable year of the Executive in which the termination occurs or at such earlier time as may be required by Section 10 below or to such lesser extent as may be mandated by Section 9 below. Any Accrued Benefits to which the Executive is entitled shall be paid to the Executive as provided in the relevant plans and arrangements.

6. Covenants. The Executive agrees and acknowledges that the Executive is bound by the Employee Invention Assignment and Confidentiality Agreement entered into by and between the Executive and the Company (the “Confidentiality Agreement”), including but not limited to the Executive’s confidentiality, non-competition and non-solicitation obligations thereunder.

7. Definitions.

(a) “Board” means the Company’s board of directors.

 

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(b) “Cause means the Executive’s (i) unauthorized use or disclosure of the Company’s confidential information or trade secrets, which use or disclosure causes or is reasonably likely to cause material harm to the Company, (ii) material failure to comply with the Company’s written policies or rules, (iii) conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States or any state, (iv) gross negligence or willful misconduct, (v) continuing failure to perform assigned duties after receiving written notification of the failure from the Chief Executive Officer or Board, or (vi) failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested the Executive’s cooperation. The determination as to whether the Executive has been terminated for Cause shall be made in good faith by the Company and shall be final and binding on the Executive. The term “Company” will be interpreted to include any subsidiary or parent of the Company, as appropriate.

(c) “Code” means the Internal Revenue Code of 1986, as amended.

(d) “Change in Control” means the occurrence of any of the following events, provided that the transaction (including any series of transactions) also qualifies as a change in control event under U.S. Treasury Regulation 1.409A-3(i)(5):

(i) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total voting power represented by the Company’s then-outstanding voting securities; provided, however, that for purposes of this subclause (i) the acquisition of additional securities by any one Person who is considered to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be considered a Change in Control;

(ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

(iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;

(iv) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the capital stock of the Company); or

(v) a change in the effective control of the Company that occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by members of the Board whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purpose of this subclause (v), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control.

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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(e) “CIC Qualifying Termination” means a Separation (A) within twelve (12) months following a Change in Control or (B) within three (3) months preceding a Change in Control (but as to part (B), only if the Separation occurs after a Potential Change in Control) resulting, in either case (A) or (B), from (i) the Company terminating the Executive’s employment for any reason other than Cause or (ii) the Executive resigning his or her employment for Good Reason. A termination or resignation due to the Executive’s death or disability shall not constitute a CIC Qualifying Termination. A “Potential Change in Control” means the date of execution of a legally binding and definitive agreement for a corporate transaction which, if consummated, would constitute the applicable Change in Control (which for the avoidance of doubt, would include, for example, a merger agreement, but not a term sheet for a merger agreement). In the case of a termination following a Potential Change in Control and before a Change in Control, solely for purposes of benefits under this Agreement, the date of Separation will be deemed the date the Change in Control is consummated.

(f) “Equity Awards” means any and all options to purchase shares of Company common stock as well as any and all other stock-based awards granted to the Executive, including but not limited to stock bonus awards, restricted stock, restricted stock units or stock appreciation rights. Following a Change in Control, “Equity Awards” shall also include any substantially comparable cash-based awards that are substituted for Equity Awards that were unvested and outstanding as of immediately prior to such Change in Control.

(g) “Good Reason” means, without the Executive’s consent, (i) a material reduction in duties, responsibilities or authority, (ii) a material reduction in Executive’s annual base salary or annual target bonus, or (iii) a requirement that Executive relocate Executive’s principal place of work to a location that increases Executive’s one-way commute by more than thirty (30) miles from Executive’s then-current work location. For the purpose of clause (i), solely in connection with a Change in Control, a change in responsibility shall not be deemed to occur (A) solely because Executive is part of a larger organization or (B) solely because of a change in title. For the Executive to receive the benefits under this Agreement as a result of a voluntary resignation under this subsection (g), all of the following requirements must be satisfied: (1) the Executive must provide notice to the Company of his or her intent to assert Good Reason within sixty (60) days of the initial existence of one or more of the conditions set forth in subclauses (i) through (iii); (2) the Company will have thirty (30) days (the “Company Cure Period”) from the date of such notice to remedy the condition and, if it does so, the Executive may withdraw his or her resignation or may resign with no benefits under this Agreement; and (3) any termination of employment under this provision must occur within ten (10) days of the earlier of expiration of the Company Cure Period or written notice from the Company that it will not undertake to cure the condition set forth in subclauses (i) through (iii). Should the Company remedy the condition as set forth above and then one or more of the conditions arises again, the Executive may assert Good Reason again subject to all of the conditions set forth herein.

(i) “Release Conditions” mean the following conditions occurring within sixty (60) days following the Separation: (i) the Company has received the Executive’s executed Release and (ii) any rescission period applicable to the Executive’s executed Release has expired without the Executive rescinding the Release.

(j) “Qualifying Termination” means a Separation that is not a CIC Qualifying Termination, but which results from the Company terminating the Executive’s employment for any reason other than Cause. A termination or resignation due to the Executive’s death or disability shall not constitute a Qualifying Termination.

 

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(k) “Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.

8. Successors.

(a) Company’s Successors. The Company shall require any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets or which becomes bound by this Agreement by operation of law.

(b) Executive’s Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Golden Parachute Taxes.

(a) Best After-Tax Result. In the event that any payment or benefit received or to be received by the Executive pursuant to this Agreement or otherwise (“Payments”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but for this subsection (a), be subject to the excise tax imposed by Section 4999 of the Code, any successor provisions, or any comparable federal, state, local or foreign excise tax (“Excise Tax”), then, subject to the provisions of Section 10, such Payments shall be either (A) provided in full pursuant to the terms of this Agreement or any other applicable agreement, or (B) provided as to such lesser extent which would result in the Payments being $1.00 less than the amount at which any portion of the Payments would be subject to the Excise Tax (“Reduced Amount”), whichever of the foregoing amounts, taking into account the applicable federal, state, local and foreign income, employment and other taxes and the Excise Tax (including, without limitation, any interest or penalties on such taxes), results in the receipt by the Executive, on an after-tax basis, of the greatest amount of payments and benefits provided for hereunder or otherwise, notwithstanding that all or some portion of such Payments may be subject to the Excise Tax. Unless the Company and the Executive otherwise agree in writing, any determination required under this Section shall be made by independent tax counsel designated by the Company and reasonably acceptable to the Executive (“Independent Tax Counsel”), whose determination shall be conclusive and binding upon the Executive and the Company for all purposes. For purposes of making the calculations required under this Section, Independent Tax Counsel may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code; provided that Independent Tax Counsel shall assume that the Executive pays all taxes at the highest marginal rate. The Company and the Executive shall furnish to Independent Tax Counsel such information and documents as Independent Tax Counsel may reasonably request in order to make a determination under this Section. The Company shall bear all costs that Independent Tax Counsel may reasonably incur in connection with any calculations contemplated by this Section. In the event that Section 9(a)(ii)(B) above applies, then based on the information provided to the Executive and the Company by Independent Tax Counsel, the Executive may, in the Executive’s sole discretion and within thirty (30) days of the date on which the Executive is provided with the information prepared by Independent Tax Counsel, determine which and how much of the Payments (including the accelerated vesting of equity compensation awards) to be otherwise received by Executive shall be eliminated or reduced (as long as after such determination the value (as calculated by

 

6


Independent Tax Counsel in accordance with the provisions of Sections 280G and 4999 of the Code) of the amounts payable or distributable to the Executive equals the Reduced Amount). If the Internal Revenue Service (the “IRS”) determines that any Payment is subject to the Excise Tax, then Section 9(b) hereof shall apply, and the enforcement of Section 9(b) shall be the exclusive remedy to the Company.

(b) Adjustments. If, notwithstanding any reduction described in Section 9(a) hereof (or in the absence of any such reduction), the IRS determines that the Executive is liable for the Excise Tax as a result of the receipt of one or more Payments, then the Executive shall be obligated to surrender or pay back to the Company, within one-hundred twenty (120) days after a final IRS determination, an amount of such payments or benefits equal to the “Repayment Amount.” The Repayment Amount with respect to such Payments shall be the smallest such amount, if any, as shall be required to be surrendered or paid to the Company so that the Executive’s net proceeds with respect to such Payments (after taking into account the payment of the Excise Tax imposed on such Payments) shall be maximized. Notwithstanding the foregoing, the Repayment Amount with respect to such Payments shall be zero (0) if a Repayment Amount of more than zero (0) would not eliminate the Excise Tax imposed on such Payments or if a Repayment Amount of more than zero would not maximize the net amount received by the Executive from the Payments. If the Excise Tax is not eliminated pursuant to this Section 9(b), the Executive shall pay the Excise Tax.

10. Miscellaneous Provisions.

(a) Section 409A. To the extent (i) any payments to which the Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with the Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (ii) the Executive is deemed at the time of such termination of employment to be a “specified” employee under Section 409A of the Code, then such payment or payments shall not be made or commence until the earlier of (i) the expiration of the six (6)-month period measured from the Executive’s Separation; or (ii) the date of the Executive’s death following such Separation; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to the Executive, including (without limitation) the additional twenty percent (20%) tax for which the Executive would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to the Executive or the Executive’s beneficiary in one lump sum (without interest). Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement (or otherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which the Executive incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit. To the extent that any provision of this Agreement is ambiguous as to its exemption or compliance with Section 409A, the provision will be read in such a manner so that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any payments where such construction is not tenable, that those payments comply with Section 409A to the maximum permissible extent. To the extent any payment under this Agreement may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A under another provision of Section 409A. Payments pursuant to this Agreement (or referenced in this Agreement) are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under Section 409A.

 

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(b) Other Arrangements. This Agreement supersedes any and all cash severance arrangements and vesting acceleration arrangements under any offer letter or employment agreement, agreement governing Equity Awards, severance and salary continuation arrangements, programs and plans which were previously offered by the Company to the Executive, including change in control severance arrangements and vesting acceleration arrangements pursuant to an agreement governing Equity Awards, employment agreement or offer letter, and the Executive hereby waives the Executive’s rights to such other benefits; provided that, for clarity, this Agreement shall not supersede, and the Executive does not hereby waive his or her rights to, the acceleration of vesting arrangements that may be applicable to any Performance-Based Equity Awards. In no event shall the Executive receive cash severance benefits under both this Agreement and any other severance pay or salary continuation program, plan or other arrangement with the Company or its subsidiaries. For the avoidance of doubt, in no event shall the Executive receive payment under both Section 2 and Section 3 with respect to the Executive’s Separation (provided, that, the Executive may receive certain acceleration benefits pursuant to Section 3(c) as set forth in Section 2(c)).

(c) Dispute Resolution. To ensure rapid and economical resolution of any and all disputes that might arise in connection with this Agreement, the Executive and the Company agree that any and all disputes, claims, and causes of action, in law or equity, arising from or relating to this Agreement or its enforcement, performance, breach, or interpretation, will be resolved solely and exclusively by final, binding, and confidential arbitration, by a single arbitrator, in Santa Clara County, and conducted by Judicial Arbitration & Mediation Services, Inc. (“JAMS”) under its then-existing employment rules and procedures. Notwithstanding the foregoing agreement to resolve disputes in arbitration either party may obtain injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Each party shall be responsible for the payment of its own attorneys’ fees.

(d) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or deposited with Federal Express Corporation, with shipping charges prepaid. In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.

(e) Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by the Chief Executive Officer of the Company. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(f) Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.

(g) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

 

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(h) No Retention Rights. Nothing in this Agreement shall confer upon the Executive any right to continue in service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or any subsidiary or parent of the Company or of the Executive, which rights are hereby expressly reserved by each, to terminate his service at any time and for any reason, with or without Cause.

(i) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California (other than its choice-of-law provisions).

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

 

EXECUTIVE      BILL.COM HOLDINGS, INC.
 

             

    

             

 Print Name:                   By:   
       Title:   

 

10

Exhibit 10.7

November 29, 2019

Dear René Lacerte:

This letter agreement memorializes the terms of your continued employment with Bill.com Holdings, Inc. (the “Company”)1, and will be effective as of the date on which the Registration Statement on Form S-1 for the initial public offering of the Company’s common stock is declared effective by the United States Securities and Exchange Commission.

You will continue to work in the role of Chief Executive Officer, reporting to the Company’s Board of Directors.

1. Compensation.

a. Base Wage. In this position, the Company will pay you an annual base salary of $425,000 per year, payable in accordance with the Company’s standard payroll schedule. Your pay will be periodically reviewed as a part of the Company’s regular reviews of compensation.

b. Bonus. You will be eligible to receive a discretionary annual bonus of up $425,000 subject to and in accordance with the terms of the Company’s bonus plan. Please note that bonus programs, payouts and criterion are subject to change or adjustment in the discretion of the Company to account for the, among other things, the business needs of the Company.

2. Employee Benefits. You will be eligible to participate in a number of Company-sponsored benefits to the extent that you comply with the eligibility requirements of each such benefit plan. The Company, in its sole discretion, may amend, suspend or terminate its employee benefits at any time, with or without notice. In addition, you will be entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.

3. Termination Benefits. If you are subject to a Qualifying Termination or a CIC Qualifying Termination, you will be eligible to receive certain payments and benefits as set forth in the Change in Control and Severance Agreement between you and the Company dated on or about the date hereof (the “CIC and Severance Agreement”). “Qualifying Termination” and “CIC Qualifying Termination” shall have the meanings ascribed to them in the CIC and Severance Agreement.

4. Confidentiality Agreement. By signing this letter agreement, you reaffirm the terms and conditions of the Employee Invention Assignment and Confidentiality Agreement by and between you and the Company.

5. No Conflicting Obligations. You understand and agree that by signing this letter agreement, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

 

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Any reference to the Company will be understood to include any direct or indirect subsidiary of the Company that employs you, including Bill.com, Inc.


6. Outside Activities. While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

7. Arbitration. You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s private proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This letter does not, however, restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://www.jamsadr.com/rules-employment-arbitration. If you are unable to access these rules, please let the Company know and the Company will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

8. Equal Employment Opportunity. The Company is an equal opportunity employer and conducts its employment practices based on business needs and in a manner that treats employees and applicants on the basis of merit and experience. The Company prohibits unlawful discrimination on the basis of race, color, religion, sex, pregnancy, national origin, citizenship, ancestry, age, physical or mental disability, veteran status, marital status, domestic partner status, sexual orientation, or any other consideration made unlawful by federal, state or local laws.

9. General Obligations. As an employee, you will be expected to continue to adhere to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. You will also be expected to continue to comply with the Company’s policies and procedures. The Company is an equal opportunity employer.

10. At-Will Employment. Your employment with the Company continues to be for no specific period of time. Your employment with the Company will continue to be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. Any contrary representations which may have been made to you are superseded by this letter agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Board of Directors.


11. Withholdings. All forms of compensation paid to you as an employee of the Company shall be less all applicable withholdings.

[SIGNATURE PAGE FOLLOWS]


This letter agreement supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter (other than the CIC and Severance Agreement). This letter will be governed by the laws of California, without regard to its conflict of laws provisions.

 

Very truly yours,

BILL.COM HOLDINGS, INC.

 

/s/ Brian Jacobs

By: Brian Jacobs

Board of Directors

 

ACCEPTED AND AGREED:

René Lacerte

/s/ René Lacerte

 

Signature

 

November 29, 2019

 

Date

[SIGNATURE PAGE TO AMENDED AND RESTATED OFFER LETTER]

Exhibit 10.8

November 29, 2019

Dear John Rettig:

This letter agreement amends and restates the offer letter between you and Bill.com Holdings, Inc. (the “Company”)1, dated May 9, 2014 (the “Prior Agreement”), effective as of the date on which the Registration Statement on Form S-1 for the initial public offering of the Company’s common stock is declared effective by the United States Securities and Exchange Commission.

You will continue to work in the role of Chief Financial Officer and Executive Vice President, Finance and Operations, reporting to the Company’s Chief Executive Officer.

1. Compensation.

a. Base Wage. In this position, the Company will pay you an annual base salary of $350,000 per year, payable in accordance with the Company’s standard payroll schedule. Your pay will be periodically reviewed as a part of the Company’s regular reviews of compensation.

b. Bonus. You will be eligible to receive a discretionary annual bonus of up $250,000, subject to and in accordance with the terms of the Company’s bonus plan. Please note that bonus programs, payouts and criterion are subject to change or adjustment in the discretion of the Company to account for the, among other things, the business needs of the Company.

2. Employee Benefits. You will be eligible to participate in a number of Company-sponsored benefits to the extent that you comply with the eligibility requirements of each such benefit plan. The Company, in its sole discretion, may amend, suspend or terminate its employee benefits at any time, with or without notice. In addition, you will be entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.

3. Termination Benefits. If you are subject to a Qualifying Termination or a CIC Qualifying Termination, you will be eligible to receive certain payments and benefits as set forth in the Change in Control and Severance Agreement between you and the Company dated on or about the date hereof (the “CIC and Severance Agreement”). “Qualifying Termination” and “CIC Qualifying Termination” shall have the meanings ascribed to them in the CIC and Severance Agreement.

4. Confidentiality Agreement. By signing this letter agreement, you reaffirm the terms and conditions of the Employee Invention Assignment and Confidentiality Agreement by and between you and the Company.

5. No Conflicting Obligations. You understand and agree that by signing this letter agreement, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

 

1 

Any reference to the Company will be understood to include any direct or indirect subsidiary of the Company that employs you, including Bill.com, Inc.


6. Outside Activities. While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

7. Arbitration. You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s private proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This letter does not, however, restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://www.jamsadr.com/rules-employment-arbitration. If you are unable to access these rules, please let the Company know and the Company will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

8. Equal Employment Opportunity. The Company is an equal opportunity employer and conducts its employment practices based on business needs and in a manner that treats employees and applicants on the basis of merit and experience. The Company prohibits unlawful discrimination on the basis of race, color, religion, sex, pregnancy, national origin, citizenship, ancestry, age, physical or mental disability, veteran status, marital status, domestic partner status, sexual orientation, or any other consideration made unlawful by federal, state or local laws.

9. General Obligations. As an employee, you will be expected to continue to adhere to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. You will also be expected to continue to comply with the Company’s policies and procedures. The Company is an equal opportunity employer.

10. At-Will Employment. Your employment with the Company continues to be for no specific period of time. Your employment with the Company will continue to be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. Any contrary representations which may have been made to you are superseded by this letter agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Board of Directors.


11. Withholdings. All forms of compensation paid to you as an employee of the Company shall be less all applicable withholdings.

[SIGNATURE PAGE FOLLOWS]


This letter agreement supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter (other than the CIC and Severance Agreement), including, without limitation, the Prior Agreement. This letter will be governed by the laws of California, without regard to its conflict of laws provisions.

 

Very truly yours,
BILL.COM HOLDINGS, INC.

/s/ René Lacerte

By: René Lacerte
Chief Executive Officer

 

ACCEPTED AND AGREED:
John Rettig

/s/ John Rettig

Signature

November 29, 2019

Date

[SIGNATURE PAGE TO AMENDED AND RESTATED OFFER LETTER]

Exhibit 10.9

November 29, 2019

Dear Bora Chung:

This letter agreement amends and restates the offer letter between you and Bill.com Holdings, Inc. (the “Company”)1, dated October 23, 2018 (the “Prior Agreement”), effective as of the date on which the Registration Statement on Form S-1 for the initial public offering of the Company’s common stock is declared effective by the United States Securities and Exchange Commission.

You will continue to work in the role of Senior Vice President, Product Management, reporting to the Company’s Chief Executive Officer.

1. Compensation.

a. Base Wage. In this position, the Company will pay you an annual base salary of $300,000 per year, payable in accordance with the Company’s standard payroll schedule. Your pay will be periodically reviewed as a part of the Company’s regular reviews of compensation.

b. Bonus. You will be eligible to receive a discretionary annual bonus of up $100,000, subject to and in accordance with the terms of the Company’s bonus plan. Please note that bonus programs, payouts and criterion are subject to change or adjustment in the discretion of the Company to account for the, among other things, the business needs of the Company.

2. Employee Benefits. You will be eligible to participate in a number of Company-sponsored benefits to the extent that you comply with the eligibility requirements of each such benefit plan. The Company, in its sole discretion, may amend, suspend or terminate its employee benefits at any time, with or without notice. In addition, you will be entitled to paid vacation in accordance with the Company’s vacation policy, as in effect from time to time.

3. Termination Benefits. If you are subject to a Qualifying Termination or a CIC Qualifying Termination, you will be eligible to receive certain payments and benefits as set forth in the Change in Control and Severance Agreement between you and the Company dated on or about the date hereof (the “CIC and Severance Agreement”). “Qualifying Termination” and “CIC Qualifying Termination” shall have the meanings ascribed to them in the CIC and Severance Agreement.

4. Confidentiality Agreement. By signing this letter agreement, you reaffirm the terms and conditions of the Employee Invention Assignment and Confidentiality Agreement by and between you and the Company.

5. No Conflicting Obligations. You understand and agree that by signing this letter agreement, you represent to the Company that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or otherwise. The Company does not need and will not use such information and we will assist you in any way possible to preserve and protect the confidentiality of proprietary information belonging to third parties. Also, we expect you to abide by any obligations to refrain from soliciting any person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such time as any non-solicitation obligation expires.

 

1 

Any reference to the Company will be understood to include any direct or indirect subsidiary of the Company that employs you, including Bill.com, Inc.


6. Outside Activities. While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

7. Arbitration. You and the Company agree to submit to mandatory binding arbitration any and all claims arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, and/or discrimination (including harassment) based upon any federal, state or local ordinance, statute, regulation or constitutional provision except that each party may, at its, his or her option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’s private proprietary, confidential or trade secret information. All arbitration hearings shall be conducted in Santa Clara County, California. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO SUCH CLAIMS. This letter does not, however, restrict your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor). However, the parties agree that, to the fullest extent permitted by law, arbitration shall be the exclusive remedy for the subject matter of such administrative claims. The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect. The JAMS rules may be found and reviewed at http://www.jamsadr.com/rules-employment-arbitration. If you are unable to access these rules, please let the Company know and the Company will provide you with a hardcopy. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based.

8. Equal Employment Opportunity. The Company is an equal opportunity employer and conducts its employment practices based on business needs and in a manner that treats employees and applicants on the basis of merit and experience. The Company prohibits unlawful discrimination on the basis of race, color, religion, sex, pregnancy, national origin, citizenship, ancestry, age, physical or mental disability, veteran status, marital status, domestic partner status, sexual orientation, or any other consideration made unlawful by federal, state or local laws.

9. General Obligations. As an employee, you will be expected to continue to adhere to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for all. You will also be expected to continue to comply with the Company’s policies and procedures. The Company is an equal opportunity employer.

10. At-Will Employment. Your employment with the Company continues to be for no specific period of time. Your employment with the Company will continue to be on an “at will” basis, meaning that either you or the Company may terminate your employment at any time for any reason or no reason. The Company also reserves the right to modify or amend the terms of your employment at any time for any reason. Any contrary representations which may have been made to you are superseded by this letter agreement. This is the full and complete agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and the Company’s Board of Directors.


11. Withholdings. All forms of compensation paid to you as an employee of the Company shall be less all applicable withholdings.

[SIGNATURE PAGE FOLLOWS]

 


This letter agreement supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter (other than the CIC and Severance Agreement), including, without limitation, the Prior Agreement. This letter will be governed by the laws of California, without regard to its conflict of laws provisions.

 

Very truly yours,
BILL.COM HOLDINGS, INC.

/s/ René Lacerte

By: René Lacerte
Chief Executive Officer

 

ACCEPTED AND AGREED:
Bora Chung

/s/ Bora Chung

Signature

November 29, 2019

Date

[SIGNATURE PAGE TO AMENDED AND RESTATED OFFER LETTER]

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated September 5, 2019, except for the 6th paragraph of Note 1, as to which the date is November 27, 2019, in Amendment No. 1 to the Registration Statement (Form S-1) and related Prospectus of Bill.com Holdings, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

San Francisco, California

December 2, 2019