As filed with the U.S. Securities and Exchange Commission on May 20, 2021.
Registration No. 333-255797
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
FIGS, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 2300 | 46-2005653 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
(424) 300-8330
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Heather Hasson
Trina Spear
Co-Chief Executive Officers
FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
(424) 500-8209
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Marc D. Jaffe Ian D. Schuman Alison A. Haggerty Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200 |
Jeffrey D. Lawrence Chief Financial Officer FIGS, Inc. 2834 Colorado Avenue, Suite 100 Santa Monica, California 90404 (424) 500-8209 |
Dave Peinsipp Charles S. Kim Kristin VanderPas Dave Young Cooley LLP 101 California Street, 5th Floor San Francisco, California 94111 (415) 693-2000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, 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 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
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Title of Each Class of Securities to be Registered |
Amount
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Proposed
Maximum Offering Price Per Share(2) |
Proposed Maximum Aggregate Offering Price(2) |
Amount of Registration Fee(3) |
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Class A common stock, par value $0.0001 per share |
25,875,000 | $19.00 | $491,625,000 | $53,637 | ||||
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(1) |
Includes 3,375,000 shares of Class A common stock that the underwriters have the option to purchase. |
(2) |
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended. |
(3) |
The registrant previously paid a total of $10,910 in connection with the prior filing of the registration statement. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and neither we nor the selling stockholder are soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated May 20, 2021
CLASS A COMMON STOCK | 22,500,000 SHARES |
This is the initial public offering of shares of Class A common stock of FIGS, Inc.
We are offering 5,875,000 shares of our Class A common stock. The selling stockholder identified in this prospectus is offering an additional 16,625,000 shares of our Class A common stock. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholder.
Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price per share will be between $16.00 and $19.00. We have applied to list our Class A common stock on the New York Stock Exchange under the symbol FIGS.
Upon the completion of this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of each class of our common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 20 votes per share and is convertible into one share of Class A common stock. See the section titled Description of Capital Stock for more information. Immediately following the completion of this offering, all outstanding shares of our Class B common stock will be held by our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC, our majority stockholder. Immediately following the completion of this offering, these holders will represent approximately 79.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters option to purchase additional shares.
Upon the completion of this offering, we will be a controlled company within the meaning of the corporate governance rules of the New York Stock Exchange.
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 Risk Factors beginning on page 18 to read about factors you should consider before buying shares of our Class A 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 and commissions (1) |
$ | $ | ||||||
Proceeds, before expenses, to FIGS |
$ | $ | ||||||
Proceeds, before expenses, to the selling stockholder |
$ | $ |
(1) See Underwriting beginning on page 178 for additional information regarding underwriter compensation.
At our request, the underwriters have reserved for sale at the initial public offering price per share up to 5.0% of the shares of Class A common stock offered by this prospectus for sale at the initial public offering price through a directed share program to certain individuals identified by management. See the section titled UnderwritingDirected Share Program.
One or more funds affiliated with Viking Global Investors LP have indicated an interest in purchasing up to $60.0 million of our Class A common stock offered in this offering and one or more funds affiliated with Franklin Templeton have indicated an interest in purchasing up to $40.0 million of our Class A common stock offered in this offering, in each case, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may determine to purchase more, fewer or no shares in this offering, or the underwriters may determine to sell more, fewer or no shares to such funds. The underwriters will receive the same discount from any of our shares of Class A common stock purchased by these funds as they will from any other shares of Class A common stock sold to the public in this offering.
To the extent that the underwriters sell more than 22,500,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 3,375,000 shares from the selling stockholder at the initial public offering price, less the underwriting discount and commissions.
The underwriters expect to deliver the shares against payment in New York, New York on , 2021.
GOLDMAN SACHS & CO. LLC | MORGAN STANLEY |
BARCLAYS | CREDIT SUISSE | BofA SECURITIES | ||||
COWEN | GUGGENHEIM SECURITIES | KEYBANC CAPITAL MARKETS | ||||
PIPER SANDLER | OPPENHEIMER & CO. | TELSEY ADVISORY GROUP |
ACADEMY SECURITIES |
R. SEELAUS &
CO., LLC |
RAMIREZ & CO., INC. |
|
SIEBERT
WILLIAMS SHANK |
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Prospectus dated , 2021
Our mission is to celebrate, empower, and serve those who serve others.
We have built the largest DTC platform in healthcare apparel, leading the industry in the shift to digital. +1.3 Million Active Customers1 Net revenue of $263.1M2 Net revenue growth of 138%3 Gross margins of 72.3%4 Adjusted EBITDA margin of 26.3%5 NPS of +8156 1 as of December 31, 2020 2 as of December 31, 2020 3 growth from December 31, 2019 to December 31, 2020 4 as of December 31, 2020 5 as of December 31, 2020 6 as of March 1, 2021 from January 1, 2021 to March 31, 2020
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Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Class A Common Stock |
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F-1 |
Through and including , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Neither we, the selling stockholder, 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, the selling stockholder, 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 the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.
For investors outside of the United States: Neither we, the selling stockholder, 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 of 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 Class A common stock and the distribution of this prospectus outside of the United States.
i
This summary highlights selected information presented in more detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our Class A common stock. You should carefully read this prospectus in its entirety before investing in our Class A common stock, including the sections titled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Special Note Regarding Forward-Looking Statements, and our financial statements and the accompanying notes included elsewhere in this prospectus. Unless otherwise indicated, the terms FIGS, Wear FIGS, we, us and our refer to FIGS, Inc.
Our Mission
Our mission is to celebrate, empower and serve those who serve others.
Who We Are
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs aregiving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
We have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized productelevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industrys category-defining healthcare apparel and lifestyle brand.
We market and sell 98% of our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers. From 2017 to 2020, we grew net revenues from $17.6 million to $263.1 million, representing a compound annual growth rate, or CAGR, of 146%. In addition, in 2020, we delivered operating income and Adjusted EBITDA of $57.9 million and $69.1 million, respectively.
We Are Obsessed with Our Community of Awesome Humans.
We are dedicated to empowering and celebrating every healthcare professional across all disciplines and levels of experience. The healthcare community informs and inspires us, and we place these Awesome Humans at the center of everything we do. We purposefully design products to serve their particular needs and we sell those products through a convenient direct-to-consumer, or DTC, model tailored to their around-the-clock lifestyle. We use our digital platform to celebrate Awesome Humans in aspirational, creative and unexpected ways. We leverage social media platforms to listen to, engage with, understand and better serve our community of healthcare professionals at scale. Our Ambassador Program, which consists of over 250 healthcare professionals from around the world, further drives engagement with our community. Our Ambassadors are an extension of our team and are evangelists for our brand. Our differentiated community-based approach has allowed us to build a growing base of approximately 1.5 million active customers who are passionate and loyal to our brand.
Innovation Drives Our Product Development.
We create technically advanced apparel and products for the modern healthcare professional. Our design philosophy is rooted in Technical Comfortthe conviction that design, comfort and function are
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non-negotiable. While multi-billion-dollar companies were focused on athletes, we believed that nobody was sufficiently focused on healthcare professionalsextraordinary people who care for patients, cure diseases and save lives, and who deserve to look, feel and perform at their best. As a result, we developed cutting-edge fabric technology and product designs to specifically address their needs. Our proprietary fabric technology, called FIONx, offers four-way stretch, anti-odor, anti-wrinkle and moisture-wicking properties. Our scrubs feature easy-to-access zippered pockets for professional and personal items such as stethoscopes, scissors, smartphones and ID badges. Our lifestyle apparel and other non-scrub offerings allow medical professionals to be outfittedon and off shift. By enabling all healthcare professionals to have access to these products, we make the healthcare community more inclusive and aim to elevate the entire healthcare ecosystem.
We Are a Digitally Native Direct-to-Consumer Brand.
We are a digitally native DTC brand that utilizes technology to deliver a differentiated customer experience. We disrupted the industrys historical distribution model, which required healthcare professionals to physically travel to brick-and-mortar stores to purchase their uniforms. We have built the largest DTC platform in healthcare apparel, leading the industry in the shift to digital. By selling directly through our digital platform, we control all aspects of the customer experience. Further, we are able to engage with our community of healthcare professionals before, during and after purchase, through our digital platform and numerous other channels. This direct engagement enables us to establish personal relationships at scale and provides us with valuable customer data and feedback that we leverage across our organization to better serve our community.
We Leverage Data Science to Connect with and Serve Our Community.
We leverage our rich customer data set, bolstered by the inherent benefits of our DTC model, to serve our community more effectively and efficiently. We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency. We maintain centralized Data Science and Data Engineering teams and de-centralized Data Analysts working directly within each key functional area of the company. This approach enables us to gather and manage extensive data, and rapidly and directly apply that data to deliver customer insights and improve our core operating activities and decision-making processes. Our vast and growing data set plays a critical role in driving new customer acquisition as well as in our community engagement and retention strategy.
We Give Back to the Community We Serve.
In line with our purpose-driven mission, giving back is ingrained in everything we do at FIGS and has been from the beginning. When we started FIGS, we created an initiative called Threads for Threads to donate scrubs to healthcare professionals who work in resource-poor countries and lack the proper uniforms to do their jobs safely. By providing clean scrubs to these individuals, we aim to empower them and improve the quality of care they provide. Our efforts have been supported by over 60 organizations who understand the needs of local healthcare professionals and work with us to ensure that we provide what is needed. To date, we have donated hundreds of thousands of FIGS scrubs and other products to medical professionals in need. In response to the COVID-19 pandemic, in 2020, we focused our giving efforts locally in the United States, donating personal protective equipment, scrubs, funds and other essential products to frontline workers affected by the pandemic. Through all of these efforts, our approach is simple: we give back to the healthcare community that gives so much of itself to serving others.
Our Recent Financial Performance
We have demonstrated rapid growth, strong profitability and positive cash flow generation. In 2020, we achieved the following results compared to 2019:
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Expanded our community of active customers by 118% from 0.6 million to approximately 1.3 million; |
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Increased net revenues from $110.5 million to $263.1 million, representing 138% year-over-year growth; |
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Increased gross margin by 50 basis points from 71.8% to 72.3%; |
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Improved net operating (loss) income from $(0.3) million to $57.9 million; |
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Increased Adjusted EBITDA from $1.7 million to $69.1 million, representing an Adjusted EBITDA margin of 26.3% in 2020; |
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Increased cash flow from operations from $6.5 million to $21.7 million; and |
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Increased free cash flow from $1.8 million to $19.5 million. |
Active Customers (in millions) |
Net Revenues ($ in millions) |
Net Operating (Loss) Income ($ in millions) |
Adjusted EBITDA ($ in millions) |
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* |
NM = Not Meaningful |
We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. See the section titled Selected Financial DataNon-GAAP Financial Measures for information regarding Adjusted EBITDA, Adjusted EBITDA margin and free cash flow, including a reconciliation to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
Our Market Opportunity
Healthcare Apparel Is a Large, Growing and Non-Discretionary Industry.
According to the Bureau of Labor Statistics, the healthcare sector is the largest and fastest growing job segment in the United States, employing over 20 million professionals in 2020. Total U.S. employment between 2019 and 2029 is expected to grow by 15% for all healthcare professionals versus just 4% for all occupations. Within this growing market, healthcare apparel is a large, fundamentally attractive industry underpinned by its scale, recurring nature and compelling growth outlook. In 2020, the total addressable market of the healthcare apparel industry was an estimated $12.0 billion in the United States and $79.0 billion globally, according to an April 2021 Frost & Sullivan study that we commissioned. Unlike most other categories in the apparel sector, the healthcare apparel industry is largely non-discretionary, recession resistant and much less susceptible to fashion or fad risk. Hospitals, medical offices, clinics and laboratories routinely require healthcare professionals to wear scrubs, lab coats and other medical apparel during every shift. Over time, healthcare apparel purchasing has shifted from institutions to the individual, with approximately 85% of all medical professionals now purchasing their own uniforms. Due to frequent wear, healthcare apparel continuously needs to be replenished, resulting in highly predictable, recurring demand for such products.
The Industry Has Historically Lacked Innovation.
Prior to FIGS, the healthcare apparel industry had operated for over 100 years with little change or innovation. Despite attractive market fundamentals, the industry had been held back, and its consumers underserved, by legacy participants with outdated business models.
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We believe that key limitations of industry incumbents include:
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Commoditized Products. Legacy manufacturers typically sell commoditized product offerings that are notoriously ill-fitting, uncomfortable, baggy, boxy and lacking in design and functionality, with minimal focus on fabric technology or performance. |
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Brand Obscurity. Traditional scrubs manufacturers sell under third-party licenses, and therefore do not retain control over the product and have limited ability to promote brand loyalty. |
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Antiquated Distribution. An outdated distribution strategy causes incumbent manufacturers to rely on a highly fragmented network of discount brick-and-mortar medical supply stores, often in inconvenient locations, and unappealing aggregated online sites operated by third-party retailers. |
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Channel Conflict. Due to legacy wholesale relationships, many incumbent manufacturers do not sell DTC despite consumers growing desire to engage directly with brands. |
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Customer Separation. Incumbent manufacturers generally do not have a direct connection with the end customerthe healthcare professional. As a result, they lack valuable feedback regarding customers needs and preferences. |
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Challenged Margins. Structurally challenged margin profiles, stemming from third-party brand licensing and wholesale distribution economics, likely impacts incumbent manufacturers ability to invest in product innovation, marketing and customer experience. |
The Industry is Fundamentally Changing.
We believe the healthcare apparel sector is positioned for continued strong growth driven by the following key industry dynamics:
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Resilient Industry with Favorable Long-Term Trends. The healthcare apparel industry is growing and has demonstrated resilience across economic cycles, driven by the non-discretionary, replenishment nature of its products and the secular growth of the healthcare sector. |
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Increased Demand for Healthcare Professionals. Healthcare is the fastest growing job sector in the United States, having grown by 22% from January 2011 to January 2020. |
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Acceleration of eCommerce. The shift to eCommerce is rapidly accelerating as consumers continue to embrace the convenience of online and mobile shopping. For healthcare professionals who work long shifts and all hours of the day and night, the convenience of eCommerce is even more necessary. |
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Attraction to Purpose-Driven Brands. Consumers are increasingly attracted to, and interested in engaging with, purpose-driven brands using social media channels. |
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Magnified Importance of Technically Advanced Healthcare Apparel. The COVID-19 pandemic has magnified the indispensability of healthcare professionals. Due to the pandemic, more healthcare professionals are choosing to wear medical apparel, and a greater number of hospitals, medical offices and clinics are requiring staff to wear scrubs and other medical apparel. While we demonstrated consistent and significant growth prior to 2020, we believe the pandemic has accelerated awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth. |
Supported by these key trends, the healthcare apparel industry is expected to demonstrate strong and consistent growth, with the total addressable market in the United States expected to grow by a 6.1% CAGR over the next five years, from approximately $12.0 billion in 2020 to approximately $16.0 billion in 2025, according to the Frost & Sullivan study.
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What Sets Us Apart
We believe that the following competitive strengths have been key drivers of our success to date and strategically position us for continued success.
Deeply Passionate, Loyal Community
We have been building a large, growing community of deeply loyal customers who share an authentic emotional connection with FIGS. During 2020, our community more than doubled to approximately 1.3 million active customers, about 60% of whom were repeat customers. Our brand awareness is driven largely by word of mouth among healthcare professionals who are passionate about FIGS, and whose passion quickly spreads through hospitals and healthcare institutions, where thousands of healthcare professionals often work in close proximity to one another. In addition, through our digital platform and social media presence, we showcase the daily wins and challenges that healthcare professionals experience, and allow our community to engage with each other on common ground, bridging gaps that previously existed across disciplines and experience levels within the healthcare profession. Our strong customer loyalty is demonstrated by our compelling revenue retention metrics. In 2020, we retained 75% of the 2019 and prior cohorts net revenues, including 100% of the 2019 net revenues generated by 2018 and prior cohorts.
Authentic, Category-Defining Brand
FIGS is the first digitally native lifestyle brand outfitting healthcare professionals. Our brand represents premium products combined with a seamless digital customer experience that healthcare professionals have never experienced before. Many of our customers form a deep emotional connection with our brand because we are the first brand in the industry to seek relentlessly to understand and fulfill their unique needs. Through our Ambassador Program, we have formed meaningful relationships with over 250 Awesome Humans who help us reach millions of healthcare professionals around the world in an intimate, authentic and personalized way. Our strong brand affinity is demonstrated by our high Net Promoter Score of +81. See the section titled Industry and Market Data for additional information regarding Net Promoter Score.
Industry-Leading Product Innovation
We strive to create the most innovative, functional, comfortable and stylish healthcare apparel in the industry. Our design philosophy stems from an unwavering focus on what healthcare professionals need from their apparel in order to look, feel and perform at their best. Our innovative products are designed, sourced and manufactured from the fiber level. Our proprietary FIONx fabric technology is made from what we believe to be the best combination of materials and is core-spun for maximum durability to withstand the demands of a healthcare professionals work without sacrificing comfort. We design products that offer technical features such as four-way stretch, anti-odor, anti-wrinkle, and moisture-wicking properties. Our approach and products are distinct from those of legacy manufacturers, who offer poorly fitting scrubs and other commoditized healthcare apparel offerings. By elevating healthcare apparel, we seek to create products that healthcare professionals never even knew they needed or wanted, and that not only meet but exceed their expectations. We dream about inventing the future so that design is aesthetically pleasing, while also solving real problems for our community. This combination of form and function results in a range of products that deliver maximum comfort, function and style.
Digitally Native Direct-to-Consumer Strategy
Our business is powered by a digitally native DTC strategy, which offers significant competitive advantages. Unlike most incumbent scrubs manufacturers, who sell through legacy distribution channels and do
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not have direct touchpoints with the end customer, we directly engage with and serve medical professionals through our digital platform. By owning all aspects of the customer experience, including website and app design, marketing content, storytelling and post-purchase customer engagement, we deliver an elevated, personalized and seamless experience. Our DTC strategy also gives us access to valuable real-time customer data that allows us to better acquire and retain customers and reliably predict buying patterns. This leads to operational efficiencies throughout our supply chain, inventory management and new product development.
Highly Effective Merchandising and Product Launch Model
We have developed a highly effective merchandising strategy, anchored by our recurring, functional offering of 13 core scrubwear styles, which represented approximately 82% of our net revenues in 2020. The remaining 18% of net revenues in 2020 was generated by limited edition scrubwear styles as well as our lifestyle apparel and other non-scrub offerings, which include lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks, face shields and other products. We launch limited edition colors or styles approximately weekly, driving recurring traffic to our digital platform where customers often purchase limited edition products along with our core offerings. These launches not only drive interest in the limited edition products themselves, they also drive our core business, as, on average, 90% of sales on launch days are core styles. This innovative, lower-risk merchandising strategy drives recurring demand while maintaining inventory efficiency.
Attractive Financial Profile Driving Robust Growth, Profitability and Cash Flow Generation
Our business model supports our attractive financial profile characterized by robust growth, profitability and cash flow generation. We have built an industry-leading business with only approximately $60.0 million of outside equity capital raised between 2013 and 2020, reflecting our focus on scalability and capital efficiency. As a successful DTC brand with a highly effective merchandising model, we benefit from structurally advantaged product margins and have experienced rapid growth and strong profitability. In 2020, we delivered net revenue growth of 138%, gross margins of 72.3%, operating income margins of 22.0% and Adjusted EBITDA margins of 26.3%. Due to our modest capital expenditure requirements, we enjoy significant cash flow generation.
Mission-Driven, Founder-Led Culture and Execution
Our company culture, strategic vision and operational execution are driven by our visionary co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear. Ms. Hasson and Ms. Spear are successful entrepreneurs who offer highly complementary skillsets that have helped to scale FIGS from selling out of the back of a car to generating net revenues of $263.1 million in 2020.
Our company culture mirrors our founders mission to celebrate, empower and serve those who serve others. We understand that authentically serving humans starts from within, and we are passionate about supporting our community and ensuring that our company reflects the world we want to live in.
Our Growth Strategies
In 2020, the total addressable market of the U.S. healthcare apparel industry was approximately $12.0 billion, according to the Frost & Sullivan study. We estimate that, notwithstanding our rapid growth to date, our share of the U.S. healthcare apparel industry is currently approximately 2.1%, presenting substantial opportunity for further growth. We believe we are well-positioned to significantly expand our market share and drive sustainable growth and profitability by executing on the following strategies:
Continue to Increase Customer Loyalty
We have the opportunity to create customers for lifecustomers who return to FIGS repeatedly throughout their medical careers. Healthcare apparel continuously needs to be replenished, resulting in highly predictable,
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recurring demand. As a result, customer loyalty and retention will continue to be a key driver of our growth. We encourage repeat purchases by introducing innovative limited edition styles, products and color drops. We inspire customer loyalty by building authentic relationships with our community and by creating thoughtful brand and performance marketing focused on retention. For example, through our #FIGSLOVE program, we send special gifts, such as embroidered lab coats, to members of our community when they graduate from school, open a new practice or reach other career milestones. We aim to be part of their journey, building deep, lasting relationships along the way.
For customers that were acquired between 2017 and 2019, approximately 50% returned for a second purchase, demonstrating our high customer retention and engagement. After a second purchase, 63% of those customers in that cohort purchased again. After a third purchase, 70% of those customers in that cohort purchased yet again. By leveraging data analytics and developing new personalization capabilities, we plan to continue to deepen our existing customer relationships to further improve our strong customer retention and engagement.
Grow Brand Awareness and Attract New Customers
As of March 31, 2021, we served a community of approximately 1.5 million active customers, which compares to a broader total addressable market of over 20 million healthcare professionals in the United States. In addition, while men on average represented approximately 25% of the U.S. healthcare workforce in 2019, our mens business represented only 17% of our net revenues in 2020, presenting significant opportunity to expand our customer base.
We have a significant opportunity to grow brand awareness and attract new customers to FIGS through word of mouth, brand marketing and performance marketing. Among U.S. healthcare professionals and medical students, we have aided and unaided brand awareness of 55% and 22%, respectively, according to a survey performed by Frost & Sullivan. See Industry and Market Data for additional information. Hospitals and other healthcare institutions, which often employ thousands of healthcare professionals working in close physical proximity on a daily basis, serve as ideal environments for growing awareness of our brand through word of mouth. Brand marketing and performance marketing also work together to drive millions of visits to our digital platform. Brand marketing includes differentiated content, our network of 250 Ambassadors, and social media, all of which result in outsized engagement with our community. Our digital-centric performance marketing efforts are designed to drive customers from awareness to consideration to conversion. These efforts include retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Our highly productive, diversified strategy generates a significant return on new customer acquisition investments resulting from high average order value, strong product margins and attractive repeat purchase behavior.
Broaden Our Lifestyle Offerings
We intend to continue to leverage healthcare professionals trust in our technical function, fit, comfort and style, as well as our rapid product development capabilities to broaden and deepen our product offerings. We have strategically expanded our addressable market over time by creating new innovative products and entering or creating new categories that are complementary to our core offerings. Our category expansion strategy is focused on outfitting the medical professionalon and off shiftto work, at work and from work. Our customers often begin their FIGS journey with our core scrubs and expand their purchases to limited edition scrubs and lifestyle and other products, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks and face shields. As we continue to expand our offerings to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers.
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Utilize Data Science to Expand Our Community, Elevate Customer Experience and Drive Intelligent Replenishment
We expect to drive continued growth from our use of proprietary data science. Through hundreds of data attributes associated with millions of customers, we have a unique ability to welcome new healthcare professionals to our community and drive repeat business from them. As just one illustration of this, we are able to identify geographic regions where FIGS is under-represented, use our knowledge of existing community members to build machine learning-derived customer segments to identify who is most likely to purchase from us, and drive our customers to a digital experience that is pre-populated with the products most likely to appeal to them.
Similarly, we believe that traditional fixed-time subscription models are disconnected from a healthcare professionals actual needs. Instead, we use an intelligent replenishment model that is tied to individualized buying preferences. To us, it is fundamental that we cater to the unique preferences of each healthcare professionalhow often they want to buy certain products, which products they are most likely to buy, and through which channel they are most likely to transact. By leveraging data science, we are able to answer these questions for each member of our large and growing community in increasingly accurate ways, and to create replenishment opportunities that are tied to those customized needs.
Pursue International Expansion
While we expect the majority of our near-term growth to continue to come from the United States, we believe there is a tremendous opportunity over the long term to serve healthcare professionals throughout the rest of the world. According to the Frost & Sullivan study, the number of healthcare professionals and medical students internationally is expected to grow from approximately 118 million in 2020 to an estimated 124 million in 2025, and the total addressable market for international healthcare apparel is expected to grow from an estimated $67.0 billion in 2020 to an estimated $86.0 billion in 2025. In 2020, we successfully piloted international expansion by selling into Australia, Canada and the United Kingdom. Over time, we plan to enter other new markets as we seek to enhance our ability to serve our international customers and further establish FIGS as a global brand. In order to offer a more localized experience to customers internationally, we plan to launch products that are specific to local markets and digital experiences that are tied to local culture. We also intend to offer market-specific languages, currency and content, as well as strategic international shipping and distribution hubs. We plan to leverage our social media strategy and expand our network of Ambassadors to grow our brand awareness globally.
Enter New Professional Markets
Outside of the healthcare apparel industry, we believe we have a compelling long-term opportunity to enter into other uniform-wearing professional markets. In the United States, there are 40 million people outside of healthcare in service-based industries that traditionally wear uniforms every day, such as food service, hospitality, construction and transportation. The occupational nature of these professions is generally hands-on, labor-intensive and often requires apparel with technical specifications. Furthermore, we believe the incumbent apparel manufacturers in these markets suffer from limitations similar to those faced by the legacy healthcare apparel manufacturers. In our view, these marketssimilar to the healthcare apparel markethave long been underserved by incumbent apparel manufacturers and are ripe for disruption. We believe we are strategically positioned to leverage our core competencies to expand into these new markets in the future.
Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled Risk Factors immediately following this Prospectus Summary. Some of these risks include:
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Our recent rapid growth may not be sustainable or indicative of future growth, and we expect our growth rate to ultimately slow over time. |
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If we fail to manage our growth effectively, our business, financial condition and results of operations may be adversely affected. |
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We have only recently achieved profitability and may not maintain profitability in the future. |
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Our success depends on our ability to maintain the value and reputation of our brand. |
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If we fail to attract new customers, retain existing customers, or fail to maintain or increase sales to those customers, our business, financial condition, results of operations and growth prospects will be harmed. |
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If our marketing efforts are not successful, our business, financial condition and results of operations could be harmed. |
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Our business depends on our ability to maintain a strong community of engaged customers and Ambassadors, including through the use of social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, fail to maintain and grow our network of Ambassadors or otherwise fail to meet our customers expectations. |
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If we do not continue to successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability. |
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The market for healthcare apparel is highly competitive. |
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Our future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled personnel and senior management. |
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We plan to expand into additional international markets, which will expose us to new risks. |
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Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements, distribution system or inventory management could adversely affect our business, financial condition and results of operations. |
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If we are unable to accurately forecast customer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected. |
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Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks. |
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The dual-class structure of our common stock and voting agreement among us and the Class B stockholders will have the effect of concentrating control with our co-founders and Tulco, LLC. |
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We will be a controlled company within the meaning of the rules of the New York Stock Exchange and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements. |
Our Dual-Class Capital Structure
Upon the completion of this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of each class of our common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 20 votes per share and is convertible into one share of Class A common stock. Immediately following the completion of this offering, all outstanding shares of our Class B common stock will be held by our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC, our majority stockholder. Immediately following the completion of
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this offering, these holders will represent approximately 79.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters option to purchase additional shares.
Holders of shares of our Class A common stock and Class B common stock will generally vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation does not provide for cumulative voting for the election of directors.
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs after the completion of this offering, except for certain permitted transfers described in our amended and restated certificate of incorporation, including transfers for estate planning purposes or charitable transfers where voting control is retained by the transferring holder or transfers to affiliates or certain other related entities of the transferring holder. Once converted or transferred and converted into Class A common stock, the Class B common stock may not be reissued.
All outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the earlier of (1) the date fixed by our board of directors that is not less than 60 days or more than 180 days following the death or disability of both Ms. Hasson and Ms. Spear and (2) the 10-year anniversary of the date of the closing of this offering, each of which we refer to as a final conversion event. In addition, if prior to a final conversion event Tulco, LLC and its permitted transferees cease to hold at least 20% of the aggregate number of shares of all classes of common stock then outstanding (calculated on a diluted basis to include any issued and outstanding stock options, restricted stock units or other equity awards, whether vested or unvested), then any shares of Class B common stock then held by Tulco, LLC and its permitted transferees will convert automatically into shares of our Class A common stock on a date fixed by our board of directors that is not less than 60 days or more than 180 days following such occurrence. Once converted into Class A common stock, the Class B common stock may not be reissued.
Upon the conversion of all shares of Class B common stock into shares of Class A common stock, the rights of the holders of all outstanding shares of common stock will be identical.
See the section titled Description of Capital Stock for more information.
Corporate Information
We were formed in 2013 as FIGS, Inc., a Delaware corporation. Our principal executive offices are located at 2834 Colorado Avenue, Suite 100 Santa Monica, California 90404 and our telephone number is (424) 300-8330. Our website address is www.wearfigs.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this prospectus. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
Following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission, or the SEC, the investor relations page on our website, 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.
Trademarks
FIGS, the CROSS & SHIELD logo, Threads for Threads, FIONtechnology, FIONx, Technical Comfort, Awesome Humans and other registered or common law trade names, trademarks, or service marks of FIGS
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appearing in this prospectus are the property of FIGS. This prospectus may contain additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. 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. Solely for convenience, our trademarks and tradenames referred to in this prospectus may 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.
Implications of Being an Emerging Growth Company
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, or the 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:
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the option to present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations in this prospectus; |
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002; |
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reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide may be different than the information you receive from other public companies in which you hold stock.
Emerging growth companies can also take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies who have adopted the new or revised accounting standards.
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THE OFFERING
Class A common stock offered by us |
5,875,000 shares |
Class A common stock offered by the selling stockholder |
16,625,000 shares |
Total shares of Class A common stock offered |
22,500,000 shares |
Option to purchase additional shares of Class A common stock offered by the selling stockholder |
The selling stockholder has granted the underwriters a 30-day option to purchase up to 3,375,000 additional shares of our Class A common stock at the public offering price, less the underwriting discounts and commissions. |
Class A common stock to be outstanding after this offering |
149,250,131 shares |
Class B common stock to be outstanding after this offering |
12,136,315 shares |
Total common stock to be outstanding after this offering |
161,386,446 shares |
Use of Proceeds |
We estimate that the net proceeds from the sale of shares of our Class A common stock in this offering will be approximately $91.7 million, based upon an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholder. |
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock, increase our brand awareness and facilitate access to the public equity markets for us and our stockholders. We primarily intend to use the net proceeds that we receive from this offering for working capital and other general corporate purposes, which may include research and development and marketing activities, 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. Our management will have broad discretion over the use of the net proceeds from this offering. See the section titled Use of Proceeds for additional information. |
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Voting Rights |
Shares of our Class A common stock are entitled to one vote per share. Shares of our Class B common stock are entitled to 20 votes per share. |
Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. Following the completion of this offering, each share of our Class B common stock will be convertible into one share of our Class A common stock at any time and will convert automatically upon certain transfers and in certain other circumstances as described in our amended and restated certificate of incorporation. See Our Dual-Class Capital Structure above. Immediately following the completion of this offering, all outstanding shares of our Class B common stock will be held by our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC, our majority stockholder. Immediately following the completion of this offering, these holders will represent approximately 79.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters option to purchase additional shares. These Class B stockholders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change of control transaction. In addition, we and the Class B stockholders intend to enter into a voting agreement, effective immediately prior to the completion of this offering, with respect to the election of directors. See the sections titled Principal and Selling Stockholders and Description of Capital Stock for additional information. |
Controlled Company |
Upon the completion of this offering, we will be a controlled company within the meaning of the corporate governance rules of the New York Stock Exchange, or NYSE. |
Directed Share Program |
At our request, the underwriters have reserved up to 5.0% of the shares of Class A common stock offered by this prospectus for sale at the initial public offering price through a directed share program to certain individuals identified by management. Any shares sold under the directed share program will not be subject to the terms of any lock-up agreement, except in the case of shares purchased by our officers or directors. The number of shares of Class A common stock available for sale to the general public will be reduced by the number of reserved shares sold to these individuals. Any reserved shares not purchased by these individuals will be offered by the underwriters to the general public on the same basis as the other shares of Class A common stock offered under this prospectus. See the section titled UnderwritingDirected Share Program. |
Indications of Interest |
One or more funds affiliated with Viking Global Investors LP have indicated an interest in purchasing up to $60.0 million of our Class A |
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common stock offered in this offering and one or more funds affiliated with Franklin Templeton have indicated an interest in purchasing up to $40.0 million of our Class A common stock offered in this offering, in each case, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may determine to purchase more, fewer or no shares in this offering, or the underwriters may determine to sell more, fewer or no shares to such funds. The underwriters will receive the same discount from any of our shares of Class A common stock purchased by these funds as they will from any other shares of Class A common stock sold to the public in this offering. |
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 Class A common stock. |
Proposed NYSE Symbol |
FIGS |
The number of shares of our common stock to be outstanding after this offering as set forth above is based upon 143,375,131 shares of our Class A common stock and 12,136,315 shares of our Class B common stock outstanding, in each case, as of March 31, 2021, after giving effect to the RSU Net Settlement and the Common Stock Reclassification and Exchange (each as defined below), as if each had occurred as of March 31, 2021. This does not include the following additional equity awards that have already been granted:
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40,272,111 shares of our Class A common stock issuable upon the exercise of outstanding stock options under our Amended 2016 Equity Incentive Plan, or our 2016 Plan, as of March 31, 2021, at a weighted-average exercise price of $3.67 per share, including 33,387,120 shares underlying stock option awards that will be subject to the Equity Award Exchange Agreement (defined below); |
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3,719,682 shares of our Class A common stock issuable upon the vesting and settlement of outstanding restricted stock units, or RSUs, under our 2016 Plan as of March 31, 2021, all of which will be subject to the Equity Award Exchange Agreement; and |
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204,750 shares of Class A common stock issuable upon the exercise of stock options granted after March 31, 2021 under our 2016 Plan at an exercise price of $11.16 per share. |
This also does not include the following additional shares of our Class A common stock that have been reserved for future issuance:
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10,320,000 shares of our Class A common stock reserved for future issuance under our 2021 Equity Incentive Plan, or our 2021 Plan, which will become effective in connection with the completion of this offering (which number includes an estimated 2,268,352 shares of our Class A common stock underlying stock options, 458,991 shares of our Class A common stock issuable upon vesting and settlement of RSUs and 63,434 stock awards to be granted pursuant to our 2021 Plan that will become effective in connection with this offering, based upon an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus); and |
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2,060,000 shares of our Class A common stock reserved for issuance under our 2021 Employee Stock Purchase Plan, or our ESPP, which will become effective in connection with this offering. |
Following the completion of this offering, and pursuant to an equity award exchange right agreement to be entered into between us and our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, or the
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Equity Award Exchange Agreement, each of Ms. Hasson and Ms. Spear shall have a right to require us to exchange any shares of Class A common stock received upon the exercise of stock options or the vesting and settlement of RSUs, in each case granted under our 2016 Plan and outstanding prior to the date of effectiveness of the registration statement of which this prospectus forms a part, for an equivalent number of shares of Class B common stock. This includes an aggregate of 33,387,120 shares underlying outstanding options and an aggregate of 3,719,682 shares underlying outstanding RSUs held by Ms. Hasson and Ms. Spear, after giving effect to the RSU Net Settlement. The Equity Award Exchange Agreement does not cover any equity awards granted to Ms. Hasson or Ms. Spear in connection with or following the completion of this offering.
On the date immediately prior to the date of this prospectus, any remaining shares of common stock available for issuance under our 2016 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2021 Plan, and we will cease granting awards under the 2016 Plan. Our 2021 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder, which are not reflected in the numbers above. See the section titled Executive CompensationExecutive Compensation Arrangements for additional information.
Except as otherwise indicated, all information in this prospectus reflects and assumes:
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a 9-for-1 forward stock split of our common stock effected on May 19, 2021; |
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the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; |
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the net issuance of 862,286 shares of our common stock upon the vesting and settlement of RSUs, for which the service-based vesting condition was satisfied as of March 31, 2021 and for which we expect the liquidity-based vesting condition to be satisfied or settlement to occur in connection with this offering, after withholding an aggregate of 828,472 shares to satisfy associated estimated income tax obligations (based upon an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus and an assumed 49% tax withholding rate), or the RSU Net Settlement; |
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the reclassification of 155,511,446 outstanding shares of common stock (including shares issued pursuant to the RSU Net Settlement) into 155,511,446 shares of Class A common stock, which will occur immediately prior to the completion of this offering, and the subsequent exchange of an aggregate of 6,710,315 shares of Class A common stock held by Ms. Hasson and Ms. Spear and 5,426,000 shares of Class A common stock held by Tulco, LLC (which number is based on the anticipated terms of this offering and will be adjusted to a number of shares that results in Tulco, LLC holding 45% of the voting power of our outstanding capital stock immediately following this offering and taking into account any exercise of the underwriters option to purchase additional shares) into an equivalent number of shares of Class B common stock in connection with the completion of this offering pursuant to the terms of an exchange agreement to be entered into with us, which transactions we collectively refer to as the Common Stock Reclassification and Exchange; |
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the reclassification of all shares of common stock underlying outstanding equity awards under our 2016 Plan, into shares of Class A common stock, which will occur immediately prior to the completion of this offering; |
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no exercise of outstanding stock options or vesting and settlement of outstanding RSUs referred to above after March 31, 2021; and |
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no exercise by the underwriters of their option to purchase up to an additional 3,375,000 shares of our Class A common stock from the selling stockholder in this offering. |
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SUMMARY FINANCIAL DATA
The following tables summarize our financial data for the periods and as of the dates indicated. We derived our summary statements of operations data for the years ended December 31, 2019 and 2020 from our audited financial statements included elsewhere in this prospectus. We derived our summary statements of operations data for the three months ended March 31, 2020 and 2021 and the summary balance sheet data as of March 31, 2021 from our unaudited financial statements included elsewhere in this prospectus. In our opinion, the unaudited interim financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such interim financial statements. Our historical results are not necessarily indicative of the results to be expected in the future and our interim results are not necessarily indicative of the results that may be expected for the full fiscal year or any other future period. You should read the following summary financial data in conjunction with the sections titled Selected Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements, the accompanying notes and other financial information included elsewhere in this prospectus.
Years Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2019 | 2020 | 2020 | 2021 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Statements of Operations Data: |
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Net revenues |
$ | 110,494 | $ | 263,112 | $ | 31,967 | $ | 87,079 | ||||||||
Cost of goods sold |
31,158 | 72,888 | 7,655 | 24,719 | ||||||||||||
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Gross profit |
79,336 | 190,224 | 24,312 | 62,360 | ||||||||||||
Operating expenses: |
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Selling |
24,840 | 51,896 | 6,739 | 17,114 | ||||||||||||
Marketing |
33,193 | 38,852 | 7,337 | 10,840 | ||||||||||||
General and administrative(1) |
21,650 | 41,536 | 6,200 | 18,346 | ||||||||||||
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Total operating expenses |
79,683 | 132,284 | 20,276 | 46,300 | ||||||||||||
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Net (loss) income from operations |
(347 | ) | 57,940 | 4,036 | 16,060 | |||||||||||
Other income (loss), net |
459 | 136 | 98 | (38 | ) | |||||||||||
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Net income before income tax provision |
112 | 58,076 | 4,134 | 16,022 | ||||||||||||
Provision for income taxes |
| 8,318 | | 4,582 | ||||||||||||
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Net income |
$ | 112 | $ | 49,758 | $ | 4,134 | $ | 11,440 | ||||||||
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Basic earnings per share(2) |
$ | | $ | 0.32 | $ | 0.03 | $ | 0.07 | ||||||||
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Diluted earnings per share(2) |
$ | | $ | 0.30 | $ | 0.03 | $ | 0.07 | ||||||||
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Weighted-average shares outstanding - basic(2) |
153,052,983 | 153,327,308 | 153,052,983 | 154,501,660 | ||||||||||||
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Weighted-average shares outstanding - diluted(2) |
153,624,013 | 163,331,348 | 153,655,166 | 168,012,364 | ||||||||||||
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(1) |
Includes stock-based compensation expense of $0.2 million and $8.7 million for the years ended December 31, 2019 and 2020, respectively, and $0.1 million and $5.0 million for the three months ended March 31, 2020 and 2021, respectively. |
(2) |
See Note 13 to our financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted earnings per share and the weighted-average number of shares used in the computation of the per share amounts. |
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As of March 31, 2021 | ||||||||||||
Actual | Pro Forma(1) |
Pro Forma
As Adjusted(2) |
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(in thousands) | ||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 73,837 | $ | 73,837 | $ | 167,051 | ||||||
Total assets |
161,240 | 161,240 | 252,954 | |||||||||
Total liabilities |
46,985 | 50,723 | 50,723 | |||||||||
Total stockholders equity |
114,255 | 110,517 | 202,231 |
(1) |
The pro forma column reflects (1) the RSU Net Settlement and the related increase in accrued expenses and other current liabilities and a corresponding decrease in additional paid-in capital for the associated tax liabilities, (2) stock-based compensation expenses of approximately $17.4 million related to RSUs for which the service-based vesting condition had been satisfied and for which the liquidity-based vesting condition will be satisfied in connection with this offering, (3) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, and (4) the Common Stock Reclassification and Exchange. |
(2) |
The pro forma as adjusted column reflects the items described in footnote (1), and the sale by us of shares of our Class A common stock in this offering at an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. 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 or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease, as applicable, each of the amount of cash and cash equivalents, total assets and total stockholders equity by $5.6 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 and estimated offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease, as applicable, each of the amount of cash and cash equivalents, total assets and total stockholders equity by approximately $16.5 million, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
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Investing in our Class A 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 the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the accompanying notes included elsewhere in this prospectus before deciding whether to invest in shares of our Class A 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 occur, our business, financial condition, results of operations and future prospects could be adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
Our recent rapid growth may not be sustainable or indicative of future growth, and we expect our growth rate to ultimately slow over time.
We have experienced significant and rapid growth. Net revenues increased from $110.5 million in 2019 to $263.1 million in 2020. For the three months ended March 31, 2020 and 2021, we had net revenues of $32.0 million and $87.1 million, respectively. Our historical rate of growth may not be sustainable or indicative of our future rate of growth, and in future periods, our net revenues could grow more slowly than we expect or decline. We believe that continued growth in net revenues, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this Risk Factors section. We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. Any of these factors could cause our net revenue growth to slow or decline and may adversely affect our margins and profitability. Even if our net revenues continue to increase, we expect that our growth rate may slow for a number of other reasons, including if there is a slowdown in the growth of demand for our products, increased competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. Failure to continue to grow our net revenues or improve or maintain margins would adversely affect our business, financial condition and results of operations. You should not rely on our historical rate of growth as an indication of our future performance.
If we fail to manage our growth effectively, our business, financial condition and results of operations may be adversely affected.
We have expanded our operations rapidly since our founding in 2013. To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand, train and manage our employee base. We have rapidly increased employee headcount since our inception to support the growth in our business. To support our continued growth, we must effectively integrate, develop and motivate a large number of new employees. We face significant competition for personnel, including in Southern California, where our headquarters is located. To attract top talent, we may need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. In addition, we could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology and to obtain more space for our expanding workforce. Additionally, the growth of our business places significant demands on our existing management and other employees. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, may adversely affect our business, financial condition and results of operations.
In addition, we are required to manage relationships with a growing number of customers, suppliers, manufacturers, distributors and other third parties. If we are unable to expand supply, manufacturing and
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distribution capabilities when required, or our information technology systems and our other processes are inadequate to support the future growth of these relationships, we could experience delays in customer service and order response and shipping times, which would adversely impact our reputation and brand. If we are unable to manage the growth of our organization effectively, our business, financial condition and results of operations may be adversely affected.
We have only recently achieved profitability and may not maintain profitability in the future.
We have a history of operating losses and have only recently achieved profitability. We expect our operating expenses to increase in the future as we increase our sales and marketing efforts, continue to invest in developing new products, hire additional personnel, expand our operating infrastructure and expand into new geographies. Further, as a public company, we will incur additional legal, accounting and other expenses that we did not incur as a private company. These efforts and additional expenses may be more costly than we expect, and we cannot guarantee that we will be able to increase our net revenues to offset our increased operating expenses. Our net revenues growth may slow for a number of other reasons, including if we experience reduced demand for our products, increased competition, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities. If our net revenues do not grow at a greater rate than our operating expenses, we will not be able to maintain our current level of profitability.
Our success depends on our ability to maintain the value and reputation of our brand.
The FIGS brand is integral to our business strategy and our ability to attract and engage customers. Maintaining, promoting and positioning our brand will depend largely on the success of our marketing and branding efforts and our ability to provide a consistent, high quality product and customer experience. Our brand may suffer if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity about us, including our products, technology, customer service, personnel, marketing efforts, Ambassadors or suppliers. Even isolated incidents involving our company, suppliers, agents or third-party service providers, or the products we sell, could erode the trust and confidence of our customers and damage the strength of our brand, especially if such incidents result in adverse publicity, governmental investigations, product recalls or litigation.
In addition, the importance of our brand may increase to the extent we experience increased competition, which could require additional expenditures on our brand promotion activities. Maintaining and enhancing our brand image also may require us to make additional investments in areas such as merchandising, marketing and online operations. These investments may be substantial and may not ultimately be successful. Moreover, if we are unsuccessful in protecting our intellectual property rights in our brand, the value of our brand may be harmed. Any harm to our brand and reputation could adversely affect our ability to attract and engage customers and negatively impact our business, financial condition and results of operations.
If we fail to attract new customers, retain existing customers, or fail to maintain or increase sales to those customers, our business, financial condition, results of operations and growth prospects will be harmed.
Our success depends in large part upon widespread adoption of our products by healthcare professionals. In order to attract new customers and continue to expand our customer base, we must appeal to and attract healthcare professionals who identify with our products. If the number of healthcare professionals who are willing to purchase our products does not continue to increase, if we fail to deliver a high quality shopping experience or if our current or potential future customers are not convinced that our products are superior to alternatives, then our ability to retain existing customers, acquire new customers and grow our business may be harmed. We have made significant investments in enhancing our brand and attracting new customers, and we expect to continue to make significant investments to promote our products. Such campaigns can be expensive and may not result in new customers or increased sales of our products. Further, as our brand becomes more widely known, we may not attract new customers or increase our net revenues at the same rates as we have in the past. If we are unable to acquire new customers who purchase products in numbers sufficient to grow our
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business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenues may decrease, and our business, financial condition and operating results may be materially adversely affected.
In addition, our future success depends in part on our ability to increase sales to our existing customers over time, as a significant portion of our net revenues are generated from sales to existing customers, particularly those existing customers who are highly engaged and make frequent and/or large purchases of the products we offer. If existing customers no longer find our products appealing, are not satisfied with our customer service, including shipping times, or if we are unable to timely update our products to meet current trends and customer demands, our existing customers may not make purchases, or if they do, they may make fewer or smaller purchases in the future.
If we are unable to continue to attract new customers or our existing customers decrease their spending on the products we offer or fail to make repeat purchases of our products, our business, financial condition, results of operations and growth prospects will be harmed.
If our marketing efforts are not successful, our business, financial condition and results of operations could be harmed.
We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion, and promoting awareness of our brand and products is important to our ability to grow our business, drive customer engagement and attract new customers. Our marketing strategy includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and Ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app.
We have historically benefited from social media, customer referrals and word of mouth to advertise our brand. Social networks are important as a source of new customers and as a means by which to connect with existing customers, and such importance may be increasing. In addition, we have implemented grassroots marketing efforts such as engaging with local doctors, nurses and other healthcare professionals, some of whom we refer to as our Ambassadors, to assist us by introducing our brand and culture to their communities. Our social media and grassroots efforts must be tailored to each particular market. This requires substantial efforts as we enter new markets, as well as ongoing attention and resources. We also seek to engage with our customers and build awareness of our brands through sponsoring unique events and experiences. If our marketing efforts and messaging are not appropriately tailored to and accepted by the healthcare community, we may fail to attract customers and our brand and reputation may be harmed. In addition, our marketing initiatives may become increasingly expensive as competition increases, and generating a meaningful return on those initiatives may be difficult. Our future growth and profitability and the success of our brand will depend in part upon the effectiveness and efficiency of these marketing efforts.
We receive a significant amount of visits to our digital platform via social media or other channels used by our existing and prospective customers. As eCommerce and social media continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. In addition, we currently receive a significant number of visits to our website and mobile app via search engine results. Search engines frequently change the algorithms that determine the ranking and display of results of a users search, which could reduce the number of visits to our website, in turn reducing new customer acquisition and adversely affecting our results of operations. If we are unable to cost-effectively drive traffic to our digital platform, our ability to acquire new customers and our financial condition would suffer. Email marketing efforts are also important to our marketing efforts. If we are unable to successfully deliver emails to our customers or if customers do not engage with our emails, whether out of choice, because those emails are marked as low priority or spam or for other reasons, our business could be adversely affected. Our marketing initiatives may become increasingly expensive and generating a meaningful return on those initiatives may be difficult or unpredictable. Even if we successfully increase net revenues as a result of our marketing efforts, it may not offset the additional marketing expenses we incur.
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If our marketing efforts are not successful in promoting awareness of our products, driving customer engagement or attracting new customers, or if we are not able to cost-effectively manage our marketing expenses, our results of operations could be adversely affected.
Our business depends on our ability to maintain a strong community of engaged customers and Ambassadors, including through the use of social media. We may not be able to maintain and enhance our brand if we experience negative publicity related to our marketing efforts or use of social media, fail to maintain and grow our network of Ambassadors or otherwise fail to meet our customers expectations.
We currently partner with over 250 Ambassadors who help raise awareness of our brand and engage with our community. Our ability to maintain relationships with our existing Ambassadors and to identify new Ambassadors is critical to expanding and maintaining our customer base. As our market becomes increasingly competitive or as we expand internationally, recruiting and maintaining new Ambassadors may become increasingly difficult. If we are not able to develop and maintain strong relationships with our Ambassador network, our ability to promote and maintain awareness of our brand may be adversely affected. Further, if we incur excessive expenses in this effort, our business, financial condition and results of operations may be adversely affected.
We and our Ambassadors use third-party social media platforms to raise awareness of our brand and engage with our community. As existing social media platforms evolve and new platforms develop, we and our Ambassadors must continue to maintain a presence on these platforms and establish presences on emerging popular social media platforms. If we are unable to cost-effectively use social media platforms as marketing tools, our ability to acquire new customers and our financial condition may suffer. Furthermore, as laws and regulations governing the use of these platforms evolve, any failure by us, our Ambassadors, our sponsors or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties and adversely affect our business, financial condition and results of operations. In addition, an increase in the use of social media for product promotion and marketing may cause an increase in the burden on us to monitor compliance of such materials, and increase the risk that such materials could contain problematic product or marketing claims in violation of applicable regulations. For example, in some cases, the Federal Trade Commission has sought enforcement action where an endorsement has failed to clearly and conspicuously disclose a financial relationship or material connection between an influencer and an advertiser.
We also do not prescribe what our Ambassadors post, and our Ambassadors could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable regulations or platform terms of service, and may be attributed to us. Negative commentary regarding us, our products or Ambassadors and other third parties who are affiliated with us, whether accurate or not, may be posted on social media platforms at any time and may adversely affect our reputation, brand and business. The harm may be immediate, without affording us an opportunity for redress or correction and could have an adverse effect on our business, financial condition and results of operations.
In addition, customer complaints or negative publicity related to our website, mobile app, products, product delivery times, customer data handling, marketing efforts, security practices or customer support, especially on blogs and social media websites, could diminish customer loyalty and community engagement.
If we do not continue to successfully develop and introduce new, innovative and updated products, we may not be able to maintain or increase our sales and profitability.
We are an apparel and lifestyle brand for healthcare professionals. As a result, our success depends in part on our ability to create apparel for healthcare professionals, as well as to anticipate and react to changing customer demands in a timely manner. All of our products are subject to changing customer preferences that cannot be predicted with certainty. If we do not continue to introduce new products or innovations on existing
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products in a timely manner or our new products or innovations are not accepted by our customers, or if our competitors introduce similar products in a more timely fashion, our brand or our position as a leader in medical apparel could be harmed.
Further, our new products and innovations on existing and future products may not receive the same level of customer acceptance as our products have in the past. Customer preferences could change, especially as we expand our product offerings beyond our core scrubwear, and our future success depends in part on our ability to anticipate and respond to these changes. Our failure to anticipate and respond in a timely manner to changing customer preferences could lead to, among other things, lower sales, excess inventory or inventory shortages, markdowns and write-offs and diminished brand loyalty. Even if we are successful in anticipating customer needs and preferences, our ability to adequately address those needs and preferences will in part depend upon our continued ability to develop and introduce innovative, high quality products and designs and maintain our distinctive brand identity as we expand the range of products we offer. A failure to effectively introduce new products or innovations on existing products that appeal to our customers could result in a decrease in net revenues and excess inventory levels, which could adversely affect our business, financial condition and results of operations.
The market for healthcare apparel is highly competitive.
We compete in the healthcare apparel industry, principally on the basis of product quality, innovation, style, price and brand image, as well as customer experience and service. The industry is highly competitive and includes established companies as well as new entrants. We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel specialty retailers, such as Scrubs & Beyond and Uniform Advantage as well as digitally native brands such as Jaanuu. In addition, we may face future competition from large, diversified apparel companies with brand recognition and well-established sales, manufacturing and distribution infrastructure that choose to expand into the production and marketing of medical apparel. Some of our competitors have longer operating histories, larger market share and greater resources than we do.
Our competitors may be able to achieve and maintain market share more quickly and effectively than we can. Similarly, if customers perceive the products offered by our competitors to be of higher quality than ours, or our competitors offer similar products at lower prices, our revenues may decline, which would adversely affect our results of operations.
Many of our potential competitors promote their brands primarily through traditional forms of advertising, such as print media, and have substantial resources to devote to such efforts. Our competitors may also use traditional forms of advertising more quickly in new markets than we can. While we believe that our DTC business model offers us competitive advantages, our competitors may also be able to increase sales in their new and existing markets faster than we do by emphasizing different distribution channels than we do, such as wholesale and an extensive franchise network of retail stores, and many of our competitors have substantial resources to devote toward increasing sales in such ways. Competition may result in pricing pressures, reduced profit margins or lost market share or a failure to grow our market share, any of which could substantially harm our business, financial condition and results of operations.
Our future success depends on the continuing efforts of our key employees and our ability to attract and retain highly skilled personnel and senior management.
We are dependent on our ability to continue to identify, attract, develop, integrate and retain qualified and highly skilled personnel, including senior management, designers, product managers, engineers, data scientists and logistics and supply chain personnel. In particular, we are highly dependent on the services of our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, who are critical to the development of our business, future vision and strategic direction. We also heavily rely on the continued service
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and performance of other members of our senior management team, who provide leadership, contribute to the core areas of our business and help us to efficiently execute our business. If the senior management team, including any new hires that we make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business and future growth prospects could be harmed.
Additionally, the loss of any key personnel could make it more difficult to manage our operations research, development, production and marketing activities, reduce our employee retention and net revenues and impair our ability to compete. Although we have entered into employment offer letters or agreements with certain of our key personnel, these agreements have no specific duration and constitute at-will employment. We have not obtained key man life insurance policies on any of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management team.
Competition for highly skilled personnel is often intense, especially in Southern California, where our headquarters is located. We may not be successful in attracting, integrating or retaining qualified personnel to fulfill our current or future needs. We may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Failure to manage our employee base and hiring needs effectively, including successfully integrating our new hires, or to retain and motivate our current personnel may adversely affect our business, financial condition and results of operations.
If we cannot maintain our culture as we grow, we could lose the innovation, teamwork and passion that we believe contribute to our success and our business may be harmed.
We believe that a critical component of our success has been our corporate culture. We have invested substantial time and resources in building our culture, which is rooted in passion, purpose and innovation. As we continue to grow, including geographically expanding our presence outside of our headquarters in Santa Monica, California, and developing the infrastructure associated with being a public company, we will need to maintain our culture among a larger number of employees, dispersed across various geographic regions. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
We plan to expand into additional international markets, which will expose us to new and significant risks.
Our future growth depends in part on our expansion efforts outside of the United States. Our current operations and customer base are based largely in the United States, with shipping capabilities to Australia, Canada and the United Kingdom. Therefore, we have a limited number of customers and experience operating outside of the United States. We also have limited experience with regulatory environments and market practices outside of the United States and cannot guarantee that we will be able to penetrate or successfully operate in any market outside of the United States. In connection with our expansion efforts outside of North America, we may encounter obstacles we do not face in the United States, including cultural and linguistic differences, differences in regulatory environments and market practices, difficulties in keeping abreast of market, business and technical developments and foreign customers tastes and preferences.
We may also encounter difficulty expanding into new markets because of limited brand recognition in those markets, leading to delayed acceptance of our apparel by customers there. In particular, we have no assurance that our marketing efforts will prove successful outside of the narrow geographic regions in which they have been used in the United States. The expansion into new markets may also present competitive, merchandising, forecasting and distribution challenges that are different from or more severe than those we currently face. There are also other risks and costs inherent in doing business in international markets, including:
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the need to adapt and localize products for specific countries to account for, among other things, different cultural tastes, size and fit preferences or regulatory requirements; |
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difficulty establishing and managing international operations and the increased operations, travel, infrastructure, including establishment of local delivery service and customer service operations, and legal compliance costs associated with locations in different countries or regions; |
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increased shipping times to and from international markets; |
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the need to vary pricing and margins to effectively compete in international markets; |
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increased competition from local providers of similar products; |
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the ability to protect and enforce intellectual property rights abroad; |
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the need to offer customer support in various languages; |
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difficulties in understanding and complying with local laws, regulations and customs in other jurisdictions; |
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compliance with anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, or FCPA, and the U.K. Bribery Act 2010, or U.K. Bribery Act, by us, our employees and our business partners; |
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complexity and other risks associated with current and future legal requirements in other countries, including legal requirements related to medical apparel, customer advertising protection, customer product safety and data privacy frameworks, such as the EU General Data Protection Regulation 2016/679, or GDPR; |
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varying business practices and customs related to the sale of medical apparel; |
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varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; |
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tariffs and other non-tariff barriers, such as quotas and local content rules, as well as tax consequences; |
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fluctuations in currency exchange rates and the requirements of currency control regulations, which might restrict or prohibit conversion of other currencies into U.S. dollars; and |
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political or social unrest or economic instability in a specific country or region in which we operate, including, for example, the effects of Brexit, which could have an adverse impact on our operations in that location. |
Our failure to successfully manage these risks could harm our international operations and have an adverse effect on our business, financial condition and results of operations.
Shipping is a critical part of our business and any changes in, or disruptions to, our shipping arrangements could adversely affect our business, financial condition and results of operations.
We currently rely on third-party global providers to deliver the products we offer on our website and mobile app. If we are not able to negotiate acceptable pricing and other terms with these providers, or if these providers experience performance problems or other difficulties in processing our orders or delivering our products to customers, it could negatively impact our results of operations and our customers experience. For example, changes to the terms of our shipping arrangements or the imposition of surcharges or surge pricing may adversely impact our margins and profitability. In addition, our ability to receive inbound inventory efficiently and ship merchandise to customers may be negatively affected by factors beyond our and these providers control, including pandemic, weather, fire, flood, power loss, earthquakes, acts of war or terrorism or other events specifically impacting other shipping partners, such as labor disputes, financial difficulties, system failures and other disruptions to the operations of the shipping companies on which we rely. We have in the past experienced, and may in the future experience, shipping delays for reasons outside of our control. We are also subject to risks of damage or loss during delivery by our shipping vendors. If the products ordered by our customers are not delivered in a timely fashion, including to international customers, or are damaged or lost during the delivery process, our customers could become dissatisfied and cease buying products from us, which would adversely affect our business, financial condition and results of operations.
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If we experience problems with our distribution and warehouse management system, our ability to meet customer expectations, manage inventory, complete sales and achieve objectives for operating efficiencies could be harmed.
We rely on our sole fulfillment center in the City of Industry, California, which is operated by our third-party logistics provider, for all of our product distribution. Our fulfillment center includes computer-controlled and automated equipment and relies on a warehouse management system to manage supply chain fulfillment operations, which means its operations are complicated and may be subject to a number of risks related to cybersecurity, the proper operation of software and hardware, electronic or power interruptions or other system failures. In addition, because all of our products are distributed from our City of Industry fulfillment center, our operations could also be interrupted by labor difficulties, or by floods, fires or other natural disasters near our fulfillment center. We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, such as the long-term loss of customers or an erosion of our brand image. Moreover, if we or our third-party logistics provider are unable to adequately staff our fulfillment center to meet demand or if the cost of such staffing is higher than historical or projected costs due to mandated wage increases, regulatory changes, hazard pay, international expansion or other factors, our results of operations could be harmed. In addition, operating a fulfillment center comes with potential risks, such as workplace safety issues and employment claims for the failure or alleged failure to comply with labor laws or laws respecting union organizing activities. Our distribution capacity is also dependent on the timely performance of services by third parties, including the shipping of our products to and from our City of Industry distribution facility. We may need to operate additional fulfillment centers in the future to keep pace with the growth of our business, and we cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans. If we encounter problems with our distribution and warehouse management systems, our ability to meet customer expectations, manage inventory and fulfillment capacity, complete sales, fulfill orders in a timely manner and achieve objectives for operating efficiencies could be harmed, which could also harm our reputation and our relationship with our customers.
If we are unable to accurately forecast customer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected.
We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand. To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and manufacturers, based on our estimates of future demand for particular products. Failure to accurately forecast demand may result in inefficient inventory supply or increased costs. This risk may be exacerbated by the fact that we may not carry a significant amount of inventory and may not be able to satisfy short-term demand increases. Accordingly, if we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and premium nature of our brand. Further, lower than forecasted demand could also result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins. Conversely, if we underestimate customer demand, our suppliers and manufacturers may not be able to deliver products to meet our requirements, and we may be subject to higher costs in order to secure the necessary production capacity or we may incur increased shipping costs. An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, financial condition and results of operations.
Moreover, while we devote significant attention to forecasting efforts, the volume, timing, value and type of the orders we receive are inherently uncertain. In addition, we cannot be sure the same growth rates, trends and other key performance metrics are meaningful predictors of future growth. Our business, as well as our ability to
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forecast demand, is also affected by general economic and business conditions in the United States and the degree of customer confidence in future economic conditions, and we anticipate that our ability to forecast demand due to these types of factors will be increasingly affected by conditions in international markets. A significant portion of our expenses is fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenues. Any failure to accurately predict net revenues or gross margins could cause our operating results to be lower than expected, which could adversely affect our financial condition.
Merchandise returns could harm our business.
We allow our customers to return our products, subject to our return policy. We generally accept merchandise returns for full refund if returned within 30 days of the original purchase date and for exchange up to 30 days from the original purchase date. Our revenue is reported net of returns and discounts. We estimate our liability for product returns based on historical return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold. The introduction of new products, changes in customer confidence or shopping habits or other competitive and general economic conditions could cause actual returns to exceed our estimates. If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur. In addition, from time to time, our products may be damaged in transit, which can also increase return rates. Returned goods may also be damaged in transit as part of the return process which can impede our ability to resell returned goods. Competitive pressures could cause us to alter our return policies or our shipping policies, which could result in an increase in damaged products and an increase in product returns. If the rate of product returns increases significantly or if product return economics become less efficient, our business, financial condition and results of operations could be harmed.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our business, financial condition and results of operations to suffer.
We have in the past experienced, and may in the future experience, fluctuations in the cost of raw materials used in our products for reasons beyond our control. For example, our core scrubs fabric includes synthetic fabric, the components of which may experience price fluctuations. Our costs for raw materials are affected by, among other things, weather, customer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus customer countries and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials could adversely affect our cost of goods sold, business, financial condition and results of operations.
Our reliance on a limited number of third-party suppliers to provide materials for and produce our products could cause problems in our supply chain and subject us to additional risks.
We rely on third-party suppliers to manufacture our raw materials and products. Our products are manufactured by third parties and may be available, in the short-term, from a limited number of sources. We choose not to enter into long-term contracts with any of our suppliers or manufacturers for the production and supply of our raw materials and products, and typically transact business with our suppliers on an order-by-order basis. We also compete with other companies for raw materials and production.
We currently source the vast majority of the fabrics used in our products from two third-party suppliers in China, and we source the other raw materials used in our products, including items such as content labels, elastics, buttons, clasps and drawcords, from suppliers located predominantly in the Asia Pacific region. We also work with a limited number of manufacturing partners that produce our products in facilities located in South East Asia, China and South America, with the vast majority of our products currently being produced by our two largest manufacturing suppliers in South East Asia. We are continuously working to diversify our sourcing and manufacturing capabilities.
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We may experience a disruption in the supply of fabrics or raw materials from current sources, and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significantly increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner. Identifying a suitable supplier is an involved process that requires us to become satisfied with its quality control, responsiveness and service, financial stability and labor and other ethical practices. Even if we are able to expand existing or find new manufacturing or fabric sources, we may encounter delays in production and added costs as a result of the time it takes to train our suppliers and manufacturers in our methods, products, and quality control standards. Our supply of fabric or the manufacture of our products could be disrupted or delayed by the impact of global health pandemics, including the current COVID-19 coronavirus pandemic, and the related government and private sector responsive actions, such as border closures, restrictions on product shipments and travel restrictions. For example, certain of our manufacturers experienced delays and temporary shut-downs due to the COVID-19 pandemic. In order to manage the impact of these disruptions and meet our customers expectations, we increased our use of more expensive air freight during 2020, which increased our cost of goods sold. Any delays, interruption or increased costs in the supply of fabric or the manufacture of our products could have an adverse effect on our ability to meet customer demand for our products and result in lower net revenues, increased cost of goods sold and lower income from operations, both in the short and long term.
Moreover, we have occasionally received, and may in the future receive, shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenues resulting from the inability to sell those products and related increased administrative and shipping costs. Additionally, if the unacceptability of our products is not discovered until after such products are purchased by our customers, our customers could lose confidence in our products, and our business and brand could be harmed.
The operations of many of our suppliers are subject to additional risks that are beyond our control and that could harm our business, financial condition and results of operations.
Substantially all of our suppliers are located outside of the United States, and as a result, we are subject to risks associated with doing business abroad, including:
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the imposition of new laws and regulations, including those relating to labor conditions, quality and safety standards, imports, duties, taxes and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds; |
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political unrest, terrorism, labor disputes and economic instability resulting in the disruption of trade from foreign countries in which our products are manufactured; |
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reduced protection for intellectual property rights, including trademark protection, in some countries, particularly in China; |
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disruptions or delays in shipments whether due to port congestion, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions; and |
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the impact of health conditions, including the ongoing COVID-19 coronavirus pandemic, and related government and private sector responsive actions, and other changes in local economic conditions in countries where our manufacturers, suppliers or customers are located. |
These and other factors beyond our control could interrupt our suppliers production in offshore facilities, influence the ability of our suppliers to export our products cost-effectively or at all and inhibit our suppliers ability to procure certain materials, any of which could harm our business, financial condition and results of operations.
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Any failure by us or our manufacturers or suppliers to comply with product safety, labor or other laws, provide safe conditions for our or their workers or use or be transparent about ethical business practices may damage our reputation and brand and harm our business.
We are committed to supporting our communities around the globe. Operating with compassion and integrity is core to our values, which makes our reputation sensitive to allegations of unethical or improper business practices, whether real or perceived. The failure of any of our suppliers or manufacturers to provide safe and humane factory conditions and oversight at their facilities could damage our reputation and brand or result in legal claims against us. We rely on our manufacturers and suppliers compliance reporting in order to comply with regulations applicable to our products. This is further complicated by the fact that expectations of ethical business practices continually evolve and may be substantially more demanding than applicable legal requirements.
We do not control our suppliers and manufacturers or their business, and they may not comply with our guidelines or applicable law. The products we sell are subject to regulation by the Federal Customer Product Safety Commission, the Federal Trade Commission and similar state and international regulatory authorities. Product safety, labeling and licensing concerns may require us to voluntarily remove selected merchandise from our inventory. Such recalls or voluntary removal of merchandise can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs and legal expenses, which could adversely affect our results of operations. Moreover, failure of our suppliers or manufacturers to comply with applicable laws and regulations and contractual requirements could lead to litigation against us or cause us to seek other vendors, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Ethical business practices are also driven in part by legal developments and by groups active in publicizing and organizing public responses to perceived ethical shortcomings. In addition to evaluating the substance of companies practices, such groups also often scrutinize companies transparency as to such practices and the policies and procedures they use to ensure compliance by their suppliers and other business partners. If we do not meet the transparency standards expected by parties active in promoting ethical business practices, we may attract negative publicity, regardless of whether the actual labor and other business practices adhered to by us and our independent manufacturers are consistent with ethical business practices. Such negative publicity could harm our brand image, business, financial condition and results of operations.
We conduct business with suppliers and manufacturers based in China, which exposes us to risks inherent in doing business there.
We source raw material for our core scrubwear from, and conduct limited manufacturing in, the Peoples Republic of China. With the rapid development of the Chinese economy, the cost of labor has increased and may continue to increase. Our results of operations will be adversely affected if the labor costs of our third-party suppliers and manufacturers increase significantly. In addition, our manufacturers and suppliers may be unable to find a sufficient number of qualified workers due to the competitive market for skilled labor in China.
Conducting business in China exposes us to political, legal and economic risks. In particular, the political, legal and economic climate in China is fluid and unpredictable. Our ability to operate in China may be adversely affected by changes in U.S. and Chinese laws and regulations, including those related to taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervision and other matters. In addition, Chinese trade regulations are continuously evolving, and we may become subject to other forms of taxation, tariffs and duties. Furthermore, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal sale of counterfeit versions of our products. If any of these events occur, our business, financial condition and results of operations could be adversely affected.
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Increases in labor costs, including wages, could adversely affect our business, financial condition and results of operations.
Labor is a significant portion of our cost structure and is subject to many external factors, including unemployment levels, prevailing wage rates, minimum wage laws, potential collective bargaining arrangements, health insurance costs and other insurance costs and changes in employment and labor legislation or other workplace regulation. From time to time, legislative proposals are made to increase the federal minimum wage in the United States, as well as the minimum wage in California and a number of other states and municipalities, and to reform entitlement programs, such as health insurance and paid leave programs. As minimum wage rates increase or related laws and regulations change, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other hourly or salaried employees. None of our domestic employees is currently covered by a collective bargaining agreement, but any attempt by our employees to organize a labor union could result in increased legal and other associated costs. Any increase in the cost of our labor could have an adverse effect on our business, financial condition and results of operations or if we fail to pay such higher wages we could suffer increased employee turnover. Increases in labor costs could force us to increase prices, which could adversely impact our sales. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline and could adversely affect our business, financial condition and results of operations. In particular, the job market in Southern California, where our principal offices and fulfillment center as well as the majority of our employees are located, is very competitive.
In addition, a significant portion of our products are produced in Asia, with some of our products produced in China. Increases in the costs of labor and other costs of doing business in these regions could increase our costs to produce our products and could have a negative impact on our operations and earnings. Factors that could negatively affect our business include a potential significant revaluation of the currencies used in these countries, which may result in an increase in the cost of producing products, labor shortage and increases in labor costs, and difficulties and additional costs in transporting products manufactured from these countries. Also, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of normal trade relations status with, any country in which our products are manufactured, could significantly increase our cost of products and harm our business.
Our sales and profitability may decline if product costs increase or selling prices decrease.
Our business is subject to pressure on costs and pricing caused by many factors, including competition, constrained sourcing capacity and related inflationary pressure, pressure from customers to reduce the prices we charge for our products and changes in customer demand. These factors may cause us to experience increased costs while also causing us to reduce prices. If we were to increase prices in response to increased costs, we may experience reduced sales. Any of the forgoing could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could adversely affect our business, financial condition and results of operations.
If we do not successfully optimize, operate and manage the expansion of the capacity of our fulfillment center, our business, financial condition and results of operations could be harmed.
We anticipate the need to add additional fulfillment center capacity and lease new warehouse space to serve as fulfillment centers as our business continues to grow. If we continue to add fulfillment and warehouse capabilities, add products categories with different fulfillment requirements or change the mix in products that we sell, our fulfillment network will become increasingly complex and operating it will become more challenging. The expansion of our fulfillment center capacity may put pressure on our managerial, financial, operational and other resources. We cannot assure you that we will be able to locate suitable facilities on commercially acceptable terms in accordance with our expansion plans, nor can we assure you that we will be able to recruit qualified managerial and operational personnel to support our expansion plans. In addition, we
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may be required to expand our capacity sooner than we anticipate. If we are unable to secure new facilities for the expansion of our fulfillment operations, recruit qualified personnel to support any such facilities or effectively control expansion-related expenses, our order fulfillment and shipping times may be delayed and our business, financial condition and results of operations could be adversely affected.
Our credit agreement contains restrictive covenants that may limit our operating flexibility.
Although we have not drawn on our existing line of credit, our existing credit agreement contains restrictive covenants that, among other things, limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, incur additional indebtedness and liens and enter into new businesses. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the lender or terminate the credit agreement, which may limit our operating flexibility. In addition, our credit agreement is secured by all of our assets and requires us to satisfy certain financial covenants. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest when due under our credit facility. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt. Any inability to comply with the terms of our credit agreement, including failing to make scheduled payments or to meet the financial covenants, would adversely affect our business. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for additional information regarding the terms of our existing credit agreement.
A downturn in the economy may adversely affect our business.
We believe that due to the non-discretionary nature of healthcare apparel, our business is largely resistant to recessionary pressures. However, due to our limited operating history, we have not experienced a sustained recessionary period and can therefore not predict the effect on our sales and profitability of a downturn in the economy. It is possible that a downturn in the economy in markets in which we sell our products may harm our business, financial condition and results of operations.
We may seek to grow our business through acquisitions of, or investments in, new or complementary businesses, facilities, technologies or products, or through strategic alliances, and the failure to manage these acquisitions, investments or alliances, or to integrate them with our existing business, could adversely affect us.
From time to time, we may consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies, offerings or products, or enter into strategic alliances, that may enhance our capabilities, expand our outsourcing and supplier network, complement our current products or expand the breadth of our markets. Acquisitions, investments and other strategic alliances involve numerous risks, including:
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problems integrating the acquired business, facilities, technologies or products, including issues maintaining uniform standards, procedures, controls, policies and culture; |
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unanticipated costs associated with acquisitions, investments or strategic alliances; |
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diversion of managements attention from our existing business; |
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adverse effects on existing business relationships with suppliers, outsourced manufacturing partners and other third parties; |
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risks associated with entering new markets in which we may have limited or no experience; |
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potential loss of key employees of acquired businesses; and |
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increased legal and accounting compliance costs. |
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We may be unable to identify acquisitions or strategic relationships we deem suitable. Even if we do, we may be unable to successfully complete any such transactions on favorable terms or at all, or to successfully integrate any acquired business, facilities, technologies or products into our business or retain any key personnel, suppliers or customers. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations. If we are unable to identify suitable acquisitions or strategic relationships, or if we are unable to integrate any acquired businesses, facilities, technologies and products effectively, our business, financial condition and results of operations could be adversely affected.
Certain of our key operating metrics are subject to inherent challenges in measurement, and any real or perceived inaccuracies in our metrics or the underlying data may cause a loss of investor confidence in such metrics and the market price of our Class A common stock may decline.
We track certain key operating metrics using internal data analytics tools, which have certain limitations. In addition, we rely on data received from third parties, including third-party platforms, to track certain performance indicators, and we may be limited in our ability to verify such data. In addition, our methodologies for tracking metrics may change over time, which could result in changes to the metrics we report. If we undercount or overcount performance due to the internal data analytics tools we use or issues with the data received from third parties, or if our internal data analytics tools contain algorithmic or other technical errors, the data we report may not be accurate or comparable with prior periods. In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our performance metrics are not, or are not perceived to be, accurate representations of our business, if we discover material inaccuracies in our metrics or the data on which such metrics are based, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy, investors could lose confidence in the accuracy and completeness of such metrics, which could cause the price of our Class A common stock to decline.
We may incur losses from fraud.
We have occasionally in the past incurred and may in the future incur losses from various types of fraud, including stolen credit card numbers, claims that a customer did not authorize a purchase and merchant fraud. As a general matter, we are liable for fraudulent credit card transactions. Although we have measures in place to detect and reduce the occurrence of fraudulent activity on our digital platform, those measures may not always be effective. In addition to the direct costs of such losses, if the fraud is related to credit card transactions and becomes excessive, it could potentially result in us paying higher fees or affecting our ability to accept credit cards for payment. Our failure to adequately prevent fraudulent transactions could damage our reputation, result in litigation or regulatory action and lead to expenses that could substantially impact our operating results.
Additionally, we have occasionally in the past been, and may in the future be, subject to fraudulent purchases by individuals purchasing our products in bulk with the intention of unlawfully reselling such products at a premium. While we have procedures in place to detect and prevent such practices, our failure to identify those activities may adversely affect our brand and reputation.
Our business is affected by seasonality.
Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our continued strong sequential growth as well as our decision to conduct select promotions during the holiday season, we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue.
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Risks Related to Information Technology, Intellectual Property and Data Security and Privacy
System interruptions that impair customer access to our website or other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business, financial condition and results of operations.
We rely on information technology networks and systems and our website to market and sell our products and to manage a variety of business processes and activities and to comply with regulatory, legal and tax requirements. We depend on our information technology infrastructure for digital marketing activities and for electronic communications among our personnel, customers, manufacturers and suppliers around the world. Our website, portions of which are run through Shopify, and information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Our website serves as an effective extension of our marketing strategies by exposing potential new customers to our brand, product offerings and enhanced content. Due to the importance of our website and internet-related operations, we are vulnerable to website downtime and other technical failures, which may be outside of our control. Further, any slow down or material disruption of our systems, or the systems of our third-party service providers, or our website could disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions, and our ability to receive and process customer orders or engage in normal business activities. Our third-party technology providers may also change their policies, terms or offerings from time to time, may fail to introduce new features and offerings that meet our needs as we expand, or may cease to provide services to us on favorable terms, or at all, which could require us to adjust how we use our information technology systems, including our website, or switch to alternative third-party service providers which could be costly, cause interruptions and could ultimately adversely affect our business, financial condition, results of operations and growth prospects.
If our website or information technology systems, including those run by or those of our third-party providers, suffer damage, disruption or shutdown and we or our third-party providers do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be adversely affected, and we could experience delays in reporting our financial results.
If our computer and communications hardware fail, or if we suffer an interruption or degradation of services, we could lose customer data and miss order fulfillment deadlines, which could harm our business. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, cyberattacks, data loss, acts of war, break-ins, earthquake and similar events. Any failure or interruption of our website, mobile app, internal business applications or our technology infrastructure could harm our ability to serve our clients, which could adversely affect our business, financial condition and results of operations.
We use complex custom-built proprietary software in our technology infrastructure. Our proprietary software may contain undetected errors or vulnerabilities, some of which may only be discovered after the software has been implemented in our production environment or released to end users. In addition, we seek to continually update and improve our software, and we may not always be successful in executing these upgrades and improvements, and the operation of our systems may be subject to failure. We may experience slowdowns or interruptions in our website when we are updating it. For example, in the past we have experienced minor slowdowns while updating our website. Moreover, new technologies or infrastructures may not be fully integrated with existing systems on a timely basis, or at all. Any errors or vulnerabilities discovered in our software after commercial implementation or release could result in damage to our reputation, loss of customers, disruption to our eCommerce channels, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.
Additionally, if we expand our use of third-party services, including cloud-based services, our technology infrastructure may be subject to increased risk of slowdown or interruption as a result of integration with such services and/or failures by such third parties, which are out of our control. Our net revenues depend on the
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number of visitors who shop on our website and the volume of orders we can handle. Unavailability of our website or mobile app or reduced order fulfillment performance would reduce the volume of goods sold and could also adversely affect customer perception of our brand. We may experience periodic system interruptions from time to time. In addition, continued growth in our transaction volume, as well as surges in online traffic and orders associated with promotional activities or seasonal trends in our business, place additional demands on our technology platform and could cause or exacerbate slowdowns or interruptions. If there is a substantial increase in the volume of traffic on our website or the number of orders placed by customers, we will be required to further expand, scale and upgrade our technology, transaction processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our website or mobile app or expand, scale and upgrade our technology, systems and infrastructure to accommodate such increases on a timely basis. In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our website, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the eCommerce industry. Our or our third-party vendors inability to continue to update, improve and scale our website or mobile app and the underlying technology infrastructure could harm our reputation and our ability to acquire, retain and serve our customers, which could adversely affect our business, financial condition and results of operations.
Further, we endeavor to continually upgrade existing technologies and business applications, and we may be required to implement new technologies or business applications in the future. The implementation of upgrades and changes requires significant investments. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure. In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and results of operations may be adversely affected.
We must continue to expand and scale our information technology systems, and our failure to do so could adversely affect our business, financial condition and results of operations.
We will need to continue to expand and scale our information technology systems and personnel to support recent and expected future growth. As such, we will continue to invest in and implement modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools. These types of activities subject us to inherent costs and risks associated with replacing and changing these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, capital expenditures, additional administration and operating expenses, acquisition and retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, the introduction of errors or vulnerabilities and other risks and costs of delays or difficulties in transitioning to or integrating new systems into our current systems. These implementations, modifications and upgrades may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. Additionally, difficulties with implementing new technology systems, delays in our timeline for planned improvements, significant system failures or our inability to successfully modify our information systems to respond to changes in our business needs may cause disruptions in our business operations and adversely affect our business, financial condition and results of operations.
Some of our software and systems contain open source software, which may pose particular risks to our proprietary applications.
We use software licensed to us by third-party developers under open source licenses in connection with the development or deployment of our proprietary software and expect to continue to use open source software in the future. Some open source licenses contain express requirements, which may be triggered under certain
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circumstances, that licensees make available source code for modifications or derivative works created or prohibit such modifications or derivative works from being licensed for a fee. Although we monitor our use of open source software to avoid subjecting our platform to such requirements, the terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to develop or use our proprietary software. We may face claims from third parties demanding the release or license of the open source software or derivative works that we developed from such software (which could include our proprietary source code) or otherwise seeking to enforce the terms of applicable open source licenses. These claims could result in litigation and could require us to publicly release portions of our proprietary source code or cease distributing or otherwise using the implicated solutions unless and until we can re-engineer them.
In addition, our use of open source software may present greater risks than use of other third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. To the extent that our platform depends upon the successful operation of open source software, any undetected errors or defects in open source software that we use could prevent the deployment or impair the functionality of our systems and injure our reputation. In addition, the public availability of such software may make it easier for others to compromise our platform. Any of these risks could be difficult to eliminate or manage and, if not addressed, could have an adverse effect on our business, financial condition and results of operations.
Our business may be adversely affected if we are unable to provide our customers a cost-effective shopping platform that is able to respond and adapt to rapid changes in technology.
The number of people who access the internet through devices other than personal computers, including smartphones and portable computers, such as laptops and tablets, has increased dramatically in the past few years. The smaller screen size, functionality and memory associated with some alternative devices may make the use of our website and purchasing our products more difficult. The versions of our website and our mobile app developed for such alternative devices may not be compelling to customers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology.
As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changed and alternative devices and platforms, and we may need to devote significant resources to the redevelopment, support and maintenance of our website and mobile app. The timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure serving website or mobile device users may affect our results of operations. If we are unable to attract customers to our websites through these devices or are slow to develop versions of our website or mobile app that are more compatible with alternative devices, or if our customers choose not to buy products from us on their mobile devices or use mobile products that do not offer access to our websites, we may fail to capture a significant share of customers in the medical apparel market, which could adversely affect our business. In addition, in the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and results of operations may be adversely affected.
Our customer engagement on mobile devices depends upon effective operation with mobile operating systems, networks, and standards that we do not control.
An increasing number of our customers purchase our products through our mobile app. We are dependent on the interoperability of our website and mobile app with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade the functionality of our digital offering could adversely affect the user experience of our website and mobile app on mobile devices. Additionally, in order to deliver a consistent shopping experience to mobile devices, it is important that our
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mobile app is designed effectively and works well with a range of mobile technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards. In the event that it is more difficult for our customers to access and use our mobile app on their mobile devices or if our customers choose not to access or use our mobile app on their mobile devices or use mobile products that do not offer access to our platform, our sales and growth prospects could be adversely impacted.
If sensitive information about our customers is disclosed, or if we or our third-party providers are subject to real or perceived cyberattacks, our customers may curtail use of our website or mobile app, we may be exposed to liability and our reputation could suffer.
Operating our business and platform involves the collection, storage and transmission of proprietary and confidential information, as well as the personal information of our employees and customers. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data. In an effort to protect sensitive information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties. However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability to adequately protect sensitive information.
Like other eCommerce companies, we are also vulnerable to hacking, malware, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, credential stuffing attacks, denial-of-service attacks, exploitation of software vulnerabilities and other real or perceived cyberattacks. Additionally, as a result of the ongoing COVID-19 pandemic, certain functional areas of our workforce remain in a remote work environment, which has heightened the risk of these potential vulnerabilities. Any of these incidents could lead to interruptions or shutdowns of our platform, loss or corruption of data or unauthorized access to or disclosure of personal data or other sensitive information. Cyberattacks could also result in the theft of our intellectual property, damage to our IT systems or disruption of our ability to make financial reports and other public disclosures required of public companies. We have been subject to attempted cyber, phishing or social engineering attacks in the past and may continue to be subject to such attacks and other cybersecurity incidents in the future. If we gain greater visibility, we may face a higher risk of being targeted by cyberattacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyberattacks becoming more sophisticated and more difficult to detect. We and our third-party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyberattacks. Moreover, techniques used to obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our employees, our third-party service providers, or their personnel.
We and our third-party service providers may experience cyberattacks aimed at disrupting our and their services. If we or our third-party service providers experience, or are believed to have experienced, security breaches that result in marketplace performance or availability problems or the loss or corruption of, or unauthorized access to or disclosure of, personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our website. Existing customers may also decrease or stop their purchases altogether. While we maintain cyber errors and omissions insurance coverage that covers certain aspects of cyber risks, these losses may not be adequately covered by insurance or other contractual rights available to us. The successful assertion of one or more large claims against us that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have an adverse effect on our business, financial condition and results of operations.
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Furthermore, we may be required to disclose personal data pursuant to demands from individuals, privacy advocates, regulators, government agencies and law enforcement agencies in various jurisdictions with conflicting privacy and security laws. This disclosure or refusal to disclose personal data may result in a breach of privacy and data protection policies, notices, laws, rules, court orders and regulations and could result in proceedings or actions against us in the same or other jurisdictions, damage to our reputation and brand and inability to provide our products to customers in certain jurisdictions. Additionally, changes in the laws and regulations that govern our collection, use and disclosure of customer data could impose additional requirements with respect to the retention and security of customer data, could limit our marketing activities and have an adverse effect on our business, financial condition and results of operations.
Failure to comply with federal, state or foreign laws and regulations or our contractual obligations relating to privacy, data protection and customer protection, or the expansion of current or the enactment of new laws and regulations relating to privacy, data protection and customer protection, could adversely affect our business and our financial condition.
We collect and maintain significant amounts of data relating to our customers and employees, and we face risks inherent in both handling large volumes of data and in protecting the security of such data. Our actual or perceived failure to comply with any federal, state or foreign laws and regulations, or applicable industry standards that govern or apply to our collection, use, retention, sharing and security of data, could result in enforcement actions that require us to change our business practices in a manner that may negatively impact our revenue, as well as expose ourselves to litigation, fines, civil and/or criminal penalties and adverse publicity that could cause our customers to lose trust in us, negatively impacting our reputation and business in a manner that harms our financial position. Laws and regulations in the United States and around the world restrict how information about individuals is collected, processed, stored, used and disclosed, as well as set standards for its security, implement notice requirements regarding privacy practices, and provide individuals with certain rights regarding the use, disclosure and sale of their protected personal information. These laws and regulations are still being tested in courts, and they are subject to new and differing interpretations by courts and regulatory officials. We are working to comply with the privacy and data protection laws and regulations that apply to us, and we anticipate needing to devote significant additional resources to complying with these laws and regulations. It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with our current policies and practices.
In the United States, both federal and various state governments have adopted, or are considering, laws, guidelines or rules for the collection, distribution, use and storage of information collected from or about consumers or their devices. For example, California enacted the California Consumer Privacy Act, or the CCPA, which went into effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as statutory damages and a private right of action for data breaches that is expected to increase data breach litigation. Further, in November 2020, California voters passed the California Privacy Rights Act, or CPRA. The CPRA, which is expected to take effect on January 1, 2023 and to create obligations with respect to certain data relating to consumers as of January 1, 2022, significantly expands the CCPA, including by introducing additional obligations such as data minimization and storage limitations, granting additional rights to consumers, such as correction of personal information and additional opt-out rights, and creates a new entity, the California Privacy Protection Agency, to implement and enforce the law. Personal information we handle may be subject to the CPPA and CPRA, which may increase our compliance costs and potential liability. Other states have considered similar bills, which could be enacted in the future. In addition to fines and penalties that may be imposed for failure to comply with state law, some states also provide for private rights of action to customers for misuse of or unauthorized access to personal information. Our compliance with these changing and increasingly burdensome and sometimes conflicting regulations and requirements may cause us to incur substantial costs or require us to change our business practices, which may impact our financial condition. If we fail to comply with these regulations or requirements, we may be exposed to litigation expenses and possible significant liability,
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fees or fines. Further, any such claim, proceeding or action could harm our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers or an inability to process credit card payments and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.
In addition to risks posed by new privacy laws, we could be subject to claims alleging violations of long-established federal and state privacy and consumer protection laws. For example, the Telephone Consumer Protection Act, or TCPA, is a federal law that imposes significant restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. The TCPA provides for substantial statutory damages for violations, which has generated extensive class-action litigation. In addition, class-action plaintiffs in the United States are employing novel legal theories to allege that federal and state eavesdropping/wiretapping laws and state constitutions prohibit the use of analytics technologies widely employed by website and mobile app operators to understand how their users interact with their services. Despite our compliance efforts, our use of text messaging communications or similar analytics technologies could expose us to costly litigation, government enforcement actions, damages and penalties, which could adversely affect our business, financial condition and results of operations.
Outside of the United States, certain foreign jurisdictions, including the European Economic Area, or EEA, and the United Kingdom, have laws and regulations which are more restrictive in certain respects than those in the United States. For example, the EEA and the United Kingdom have adopted the GDPR, which may apply to our collection, control, use, sharing, disclosure and other processing of data relating to an identified or identifiable living individual (personal data). The GDPR, and national implementing legislation in EEA member states and the United Kingdom, impose a strict data protection compliance regime including: providing detailed disclosures about how personal data is collected and processed (in a concise, intelligible and easily accessible form); granting new rights for data subjects in regard to their personal data (including the right to be forgotten and the right to data portability), as well as enhancing current rights (e.g., data subject access requests); requirements to have data processing agreements in place to govern the processing of personal data on behalf of other organizations; introducing the obligation to notify data protection regulators or supervisory authorities (and in certain cases, affected individuals) of significant data breaches; maintaining a record of data processing; and complying with the principal of accountability and the obligation to demonstrate compliance through policies, procedures, trainings and audits.
We also may be subject to European Union rules with respect to cross-border transfers of personal data out of the EEA. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. Most recently, on July 16, 2020, the Court of Justice of the European Union, or CJEU, invalidated the EU-US Privacy Shield Framework, or Privacy Shield, under which personal data could be transferred from the EEA to US entities who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. Use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals and additional measures and/or contractual provisions may need to be put in place, however, the nature of these additional measures is currently uncertain. The CJEU went on to state that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer.
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These recent developments may require us to review and amend the legal mechanisms by which we make and/or receive personal data transfers to/ in the United States. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our business, financial condition and results of operations.
The withdrawal of the United Kingdom from the European Union has created uncertainty with regard to the regulation of data protection in the United Kingdom. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, for example, how data transfers between EU member states and the United Kingdom will be treated.
We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. Any violation of data or security laws by our third-party processors, or their acts or omissions that cause us to violate our legal obligations, could have an adverse effect on our business and result in the fines and penalties outlined below.
Fines for certain breaches of the GDPR are up to the greater of 20 million Euros or 4 % of total global annual turnover. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/ change our processing of our data, enforcement notices, and/ or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources and reputational harm.
We are also subject to evolving EU privacy laws on cookies and e-marketing. In the European Union, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive will be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. In the European Union, informed consent is required for the placement of a cookie or similar technologies on a users device and for direct electronic marketing. The GDPR also imposes conditions on obtaining valid consent, such as a prohibition on pre-checked consents and a requirement to ensure separate consents are sought for each type of cookie or similar technology. While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators recent guidance are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities. Regulation of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target individuals, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand users.
Furthermore, compliance with legal and contractual obligations requires us to make public statements about our privacy and data security practices, including the statements we make in our online privacy policy. Although we endeavor to comply with these statements, should they prove to be untrue or be perceived as untrue, even through circumstances beyond our reasonable control, we may face litigation, claims, investigations, inquiries or other proceedings by the U.S. Federal Trade Commission, state attorneys general and other federal, state and foreign regulators and private litigants alleging violations of privacy or consumer protection laws.
We are also subject to the Payment Card Industry, or PCI, Data Security Standard, which is a security standard designed to protect payment card data as mandated by payment card industry entities. We rely on vendors to handle PCI matters and to ensure PCI compliance. Despite our compliance efforts, we may become subject to claims that we have violated the PCI Data Security Standard, which could subject us to substantial fines and penalties.
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Any actual or perceived non-compliance with these rapidly changing laws, regulations or standards or our contractual obligations relating to privacy, data protection and consumer protection by us or the third-party companies we work with could result in litigation and proceedings against us by governmental entities, consumers or others, fines and civil or criminal penalties for us or company officials, obligations to cease offerings or to substantially modify our business in a manner that makes it less effective in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products, any of which could have an adverse effect on our business, financial condition and results of operations.
Government regulation of the internet and eCommerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business, financial condition and results of operations.
We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet and eCommerce. Existing and future regulations and laws could impede the growth of the internet, eCommerce or mobile commerce, which could in turn adversely affect our growth. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, customer protection and internet neutrality. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and customer privacy apply to the internet as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate or address the unique issues raised by the internet or eCommerce. It is possible that general business regulations and laws, or those specifically governing the internet or eCommerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities, customers, suppliers or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our website and mobile app by customers and suppliers and may result in the imposition of monetary liabilities. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of our own non-compliance with any such laws or regulations. As a result, adverse developments with respect to these laws and regulations could substantially harm our business, financial condition and results of operations.
Any failure or inability to protect or enforce our intellectual property rights could diminish the value of our brand, weaken our competitive position and harm our business, financial condition and results of operations.
We currently rely on a combination of copyright, trademark, trade dress, design patent and other intellectual property laws as well as confidentiality procedures and contractual restrictions to establish and protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may not be adequate to prevent infringement of these rights by others, including imitation of our products and misappropriation of our brand.
Our success depends in large part on our brand image. We believe that our trademarks and other intellectual property rights have significant value and are important to differentiating our products from those of our competitors and creating and sustaining demand for our products. We have applied for and obtained certain U.S. and foreign trademark registrations and will continue to evaluate the registration of additional trademarks as appropriate. However, we cannot guarantee that any of our pending trademark applications will be approved by the applicable governmental authorities. Moreover, even if our applications are approved, third parties may seek to oppose or otherwise challenge these registrations or other of our intellectual property rights. Third parties may also knowingly or unknowingly infringe our intellectual property rights. In any of these cases, we may be required to expend significant time and expense to defend or enforce our rights.
We also currently hold various domain names relating to our brand. We may be unable to prevent third parties from acquiring and using domain names that are confusingly similar to, or that otherwise have a negative impact on, the value of our trademarks and other proprietary rights. Any inability or failure to do so could adversely affect our brand and make it more difficult for users to find our website.
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Additionally, the expansion of our product lines and the geographic scope of our sales and marketing could pose additional intellectual property challenges. For example, certain foreign countries do not protect intellectual property rights as fully as they are protected in the United States, and accordingly, intellectual property protection may be limited, or in some circumstances unavailable, in some foreign countries where we choose to do business. Thus, it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished, and our competitive position may suffer.
Our fabrics and manufacturing technology may be imitated by our competitors.
We have applications pending for design patents in the United States and have obtained or have applications pending for corresponding industrial design registrations in other countries on certain aspects of some of our product designs. In addition, our products are made using our proprietary blends of raw materials, fabrics and fabric treatments, which results in products unique to us; however, we do not own or license the intellectual property rights for the underlying fabric technology, fabrics treatments or fabrics. Our ability to obtain intellectual property protection for our products is therefore limited. As a result, our current and future competitors may attempt to imitate our products and do so at lower prices. If our competitors are successful in doing so, our net revenues and profitability could suffer.
We may incur costs to defend against, face liability for or be vulnerable to intellectual property infringement claims brought against us by others.
Although we are not currently aware of any such claims, third parties may assert claims against us alleging that we infringe upon, misappropriate, dilute or otherwise violate their intellectual property rights, particularly as we expand our business and the number of products we offer. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign or rebrand our products, license rights from third parties, cease using certain brand names or other intellectual property rights altogether or make substantial payments for royalty or license fees, legal fees, settlement payments or other costs or damages. Any of these events could harm our business and cause our results of operations, liquidity and financial condition to suffer.
The inability to acquire, use or maintain our marks and domain names for our websites could substantially harm our business, financial condition and results of operations.
We currently are the registrant of marks for our products in numerous jurisdictions and are the registrant of the internet domain name for the website wearfigs.com, as well as various related domain names. However, we have not registered our marks represented by our domain names in all major international jurisdictions. Domain names generally are regulated by internet regulatory bodies and may not be generally protectable as trademarks in and of themselves. As our business grows, we may incur material costs in connection with the registration, maintenance and protection of our marks. If we do not have or cannot obtain on reasonable terms the ability to use our marks in a particular country, or to use or register our domain name, we could be forced either to incur significant additional expenses to market our products within that country, including the development of a new brand and the creation of new promotional materials and packaging, or to elect not to sell products in that country. Either result could adversely affect our business, financial condition and results of operations.
Furthermore, the regulations governing domain names and laws protecting marks and similar proprietary rights could change in ways that block or interfere with our ability to use relevant domains or the FIGS brand. Also, we might not be able to prevent third parties from registering, using or retaining domain names that interfere with our customer communications or infringe or otherwise decrease the value of our marks, domain names and other proprietary rights. Regulatory bodies also may establish additional generic or country-code top-level domains or may allow modifications of the requirements for registering, holding or using domain names. As a result, we might not be able to register, use or maintain the domain names that use the name FIGS or wearFIGS in all of the countries and territories in which we currently or intend to conduct business.
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Risks Related to Other Legal, Regulatory and Tax Matters
We may face exposure to foreign currency exchange rate fluctuations.
While we have historically transacted in U.S. dollars with our customers, we may transact in foreign currencies in the future as we expand offerings and operations internationally. In addition, certain of our foreign operating expenses are denominated in the currencies of the countries and territories in which our third-party vendors are located. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our net revenues and results of operations. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our Class A common stock could be lowered. We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place and may introduce additional risks if we are unable to structure effective hedges with such instruments.
The United Kingdoms withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union and ratified a trade and cooperation agreement governing its future relationship with the European Union. The agreement, which is being applied provisionally from January 1, 2021 until it is ratified by the European Parliament and the Council of the European Union, addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before withdrawal.
These developments, or the perception that any related developments could occur, have had and may continue to have an adverse effect on global economic conditions and financial markets, and may significantly reduce global market liquidity, restrict the ability of key market participants to operate in certain financial markets or restrict our access to capital. Any of these factors could have an adverse effect on our business, financial condition and results of operations and reduce the price of Class A common stock.
Any failure to comply with trade, anti-corruption and other regulations could lead to investigations or actions by government regulators and negative publicity.
The labeling, distribution, importation, marketing and sale of our products are subject to extensive regulation by various federal agencies, including the Federal Trade Commission, Customer Product Safety Commission and state attorneys general in the United States, the Competition Bureau and Health Canada in Canada, as well as by various other federal, state, provincial, local and international regulatory authorities in the countries in which our products are distributed or sold. If we fail to comply with any of these regulations, we could become subject to enforcement actions or the imposition of significant penalties or claims, which could harm our results of operations or our ability to conduct our business. For example, we and our co-founders and co-Chief Executive Officers are currently defendants in two actions brought by Strategic Partners, Inc., or SPI, in which SPI alleges, among other claims, causes of action based on false advertising. See BusinessLegal Proceedings for additional information. While we believe the claims asserted by SPI in both actions are without basis or merit, and we intend to vigorously defend against such claims, these proceedings or any investigations or
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inquiries by governmental agencies related to these or any other matters, could result in significant settlement amounts, damages, fines or other penalties, divert financial and management resources and result in significant legal fees. An unfavorable outcome of any particular proceeding could have an adverse impact on our business, financial condition and results of operations. In addition, the adoption of new regulations or changes in the interpretation of existing regulations may result in significant compliance costs or discontinuation of product sales and could impair the marketing of our products, resulting in significant loss of net revenues.
We derive a significant portion of our products from third-party manufacturing and supply partners in foreign countries and territories, including countries and territories perceived to carry an increased risk of corrupt business practices. We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act, and possibly other anti-bribery and anti-money laundering laws in countries in which we conduct activities. These laws prohibit companies and their employees and third-party intermediaries from corruptly promising, authorizing, offering or providing, directly or indirectly, improper payments or anything of value to foreign government officials, political parties and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person or securing any advantage. In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. In many foreign countries, including countries in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA or other applicable laws and regulations. We face significant risks if we or any of our directors, officers, employees, agents or other partners or representatives fail to comply with these laws, and governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties, which could adversely affect our reputation, business, financial condition and results of operations.
If our employees, contractors and agents, and companies to which we outsource certain of our business operations were to take actions in violation of our policies or applicable law, there could be an adverse effect on our reputation, business, financial condition and results of operations.
Any violation of the FCPA, other applicable anti-corruption laws or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have an adverse effect on our business, financial condition and results of operations. In addition, responding to any enforcement action may result in a significant diversion of managements attention and resources and significant defense costs and other professional fees.
Our ability to source and distribute our merchandise profitably or at all could be harmed if new trade restrictions are imposed or existing trade restrictions become more burdensome.
Substantially all of our apparel products are currently manufactured outside of the United States. The United States and the countries in which our products are produced or sold internationally have imposed and may impose additional quotas, duties, tariffs or other restrictions or regulations, or may adversely adjust prevailing quota, duty or tariff levels. Countries impose, modify and remove tariffs and other trade restrictions in response to a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Trade restrictions, including tariffs, quotas, export controls, trade sanctions, embargoes, safeguards and customs restrictions, could increase the cost or reduce the supply of products available to us or may require us to modify our supply chain organization or other current business practices, any of which could harm our business, financial condition and results of operations.
Changes in tax laws, including as a result of the 2020 United States presidential and congressional elections, may impact our future financial position and results of operation.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, or interpreted, changed, modified or applied adversely to us, any of which could adversely affect our
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business operations and financial performance. In particular, the recent presidential and congressional elections in the United States could result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting our business or indirectly affecting us because of impacts on our customers, suppliers and manufacturers. For example, the U.S. government may enact significant changes to the taxation of business entities including, among others, a permanent increase in the corporate income tax rate and the imposition of minimum taxes or surtaxes on certain types of income. No specific U.S. tax legislation has been proposed at this time and the likelihood of these changes being enacted or implemented is unclear. We are currently unable to predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, our suppliers, manufacturers or our customers, including as a result of related uncertainty, these changes may adversely impact our business, financial condition, results of operations and cash flows.
We could be required to collect additional sales taxes that may increase the costs our customers would have to pay for our products and adversely affect our results of operations.
Following the U.S. Supreme Courts decision in 2018 in South Dakota v. Wayfair, Inc., a state may impose sales tax collection obligations on certain retailers, including eCommerce companies, that lack any physical presence within such state. The Supreme Courts Wayfair decision has removed a significant impediment to the enactment of laws imposing sales tax collection obligations on out-of-state eCommerce companies, and an increasing number of states have adopted such laws. Although we believe that we currently collect sales taxes in all states that require us to do so, a successful assertion by one or more states requiring us to collect sales taxes where we currently do not collect sales taxes, or to collect additional sales taxes in a state in which we currently collect sales taxes, could result in substantial tax liabilities (including penalties and interest). In addition, the imposition of additional sales tax collection obligations, whether for prior years or prospectively, could create additional administrative burdens for us, put us at a competitive disadvantage if similar obligations are not imposed on our competitors and decrease our future sales, which could have an adverse impact on our business and results of operations.
Existing and potential tariffs imposed by the U.S. government or a global trade war could increase the cost of our products, which could have an adverse effect on our business, financial condition and results of operations.
The U.S. government has in recent years imposed increased tariffs on imports from certain foreign countries, and any imposition of additional tariffs by the United States could result in the adoption of tariffs by other countries, leading to a global trade war. While the U.S. governments recent tariffs on certain imports from China only affect a small portion of our production, any such future tariffs by the United States or other countries could have a significant impact on our business. While we may attempt to renegotiate prices with suppliers or diversify our supply chain in response to tariffs, such efforts may not yield immediate results or may be ineffective. We might also consider increasing prices to the end customer; however, this could reduce the competitiveness of our products and adversely affect net revenues. If we fail to manage these dynamics successfully, gross margins and profitability could be adversely affected. As of the date of this prospectus, tariffs have not had a material impact on our business, but increased tariffs or trade restrictions implemented by the United States or other countries in connection with a global trade war could have an adverse effect on our business, financial condition and results of operations.
Our ability to use our net operating loss carryforwards may be limited.
As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of approximately $1.8 million and $16.0 million, respectively. Under legislation enacted in 2017, informally titled, the Tax Cuts and Jobs Act, or the TCJA, as modified in 2020 by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, unused U.S. federal net operating losses generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely, but the deductibility of such federal net operating
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loss carryforwards in taxable years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the TCJA or the CARES Act. Our ability to utilize our federal net operating carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. The limitations apply if we experience an ownership change, which is generally defined as a greater than 50 percentage point change (by value) in the ownership of our equity by certain stockholders over a rolling three-year period. Similar provisions of state tax law may also apply to limit the use of our state net operating loss carryforwards. We have previously experienced ownership changes, and although such prior ownership changes have not materially limited our utilization of affected net operating loss carryforwards, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change that materially impacts our ability to utilize pre-change net operating loss carryforwards. In addition, there may be periods during which the use of net operating loss carryforwards is suspended or otherwise limited. For example, in 2020, California generally suspended the use of California net operating loss carryforwards to offset taxable income in tax years beginning after 2019 and before 2023. Accordingly, our ability to use our net operating loss carryforwards to offset taxable income may be subject to such limitations or special rules that apply at the state level, which could adversely affect our results of operations.
Risks Related to the Ownership of Our Class A Common Stock and this Offering
There has been no prior public market for our Class A common stock. An active market may not develop or be sustainable, and you may not be able to resell your shares at or above the initial public offering price.
There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock was determined through negotiations among us, the selling stockholder and the underwriters, and may vary from the market price of our Class A common stock following the completion of this offering. An active or liquid market in our Class A common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our Class A common stock, you may not be able to resell any shares you hold at or above the initial public offering price or at all. We cannot predict the prices at which our Class A common stock will trade.
Further, one or more funds affiliated with Viking Global Investors LP have indicated an interest in purchasing up to $60.0 million of our Class A common stock offered in this offering and one or more funds affiliated with Franklin Templeton have indicated an interest in purchasing up to $40.0 million of our Class A common stock offered in this offering, in each case, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may determine to purchase more, fewer or no shares in this offering, or the underwriters may determine to sell more, fewer or no shares to such funds. If one or more funds affiliated with Viking Global Investors LP are allocated all or a portion of the shares in which they have indicated an interest in this offering, and they purchase any such shares, such purchases would reduce the available public float for shares of our Class A common stock because such funds will be subject to a lock-up agreement prohibiting the sale, transfer or other disposal of such shares for 180 days after the date of this prospectus. Moreover, if funds affiliated with either Viking Global Investors LP or Franklin Templeton are allocated all or a portion of the shares in which they have indicated an interest in this offering, and they purchase any such shares, such purchases could reduce the available public float for shares of our Class A common stock if these funds hold shares long term as existing holders of our common stock.
In addition, we currently anticipate that up to 1.0% of the shares of Class A common stock offered hereby will, at our request, be offered to retail investors through Robinhood Financial, LLC, as a selling group member, via its online brokerage platform. This is the first initial public offering to be included on the Robinhood platform and there may be risks associated with the use of the Robinhood platform that we cannot foresee, including risks related to the technology and operation of the platform, and the publicity and the use of social media by users of the platform that we cannot control.
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Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares in this offering.
The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
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actual or anticipated fluctuations in our financial condition and results of operations; |
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; |
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failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors; |
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announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments; |
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changes in stock market valuations and operating performance of other healthcare and technology companies generally, or those in our industry in particular; |
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price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; |
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changes in our board of directors or management; |
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sales of large blocks of our Class A common stock, including sales by Tulco, LLC, our co-founders and co-Chief Executive Officers or our other executive officers and directors; |
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lawsuits threatened or filed against us; |
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anticipated or actual changes in laws, regulations or government policies applicable to our business; |
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changes in our capital structure, such as future issuances of debt or equity securities; |
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short sales, hedging and other derivative transactions involving our capital stock; |
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general economic conditions in the United States; |
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other events or factors, including those resulting from war, pandemics (including COVID-19), incidents of terrorism or responses to these events; and |
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the other factors described in the sections of this prospectus titled Risk Factors and Special Note Regarding Forward-Looking Statements. |
The stock market has recently experienced extreme price and volume fluctuations. The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their results of operations. Market fluctuations could result in extreme volatility in the price of shares of our Class A common stock, which could cause a decline in the value of your investment. Price volatility may be greater if the public float and trading volume of shares of our Class A common stock is low. Furthermore, in the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert managements attention and resources, and harm our business, financial condition and results of operations.
The dual-class structure of our common stock may adversely affect the trading market for our Class A common stock.
We cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index
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providers have announced restrictions on including companies with dual class or multi-class share structures in certain of their indexes. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities with unequal voting structures in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual-class capital structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock. These policies are still fairly new, and it remains unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices in the longer term, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.
Sales, directly or indirectly, of a substantial amount of our Class A common stock in the public markets by our existing security holders may cause the price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock into the public market, particularly sales by our directors, executive officers and principal stockholders, or the perception that these sales might occur, could cause the market price of our Class A common stock to decline. Many of our existing security holders have substantial unrecognized gains on the value of the equity they hold and may take steps to sell their shares or otherwise secure or limit their risk exposure to the value of their unrecognized gains on those shares. We are unable to predict the timing or effect of such sales on the market price of our Class A common stock.
All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except that any shares held by our affiliates, as defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with Rule 144 and any applicable lock-up agreements described below.
In connection with this offering, we, all of our directors and executive officers and holders of substantially all of our outstanding securities have entered into market standoff agreements with us or lock-up agreements with the underwriters that restrict our and their ability to sell or transfer shares of our capital, with respect to the company, for 180 days, and with respect to the companys officers, directors and stockholders, to the earlier of (i) 180 days after the date of this prospectus and (ii) the second full trading day following our second public release of quarterly or annual financial results following the date of this prospectus, subject to certain exceptions; provided that the lock-up agreements will expire with respect to a number of shares equal to 15% of the aggregate number of shares of common stock owned by each holder or issuable upon exercise of vested equity awards owned by each holder immediately prior to the commencement of trading on the third trading day following the date that the following conditions are met: (1) the latter of (a) the date we publish our first quarterly or annual financial results following the date set forth on the cover of this prospectus and (b) the 90th day following the date of this prospectus and (2) the closing price of our class A common stock on the NYSE is at least 33% greater than the initial public offering price of the shares to the public as set forth on the cover of this prospectus for at least 10 trading days (including the date these conditions are met) in any 15-day consecutive trading day period. In addition, we and Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC may release certain stockholders from the market standoff agreements or lock-up agreements prior to the end of the lock-up period. If not otherwise early released, when the applicable market standoff and lock-up periods expire, we and our security holders subject to a lock-up agreement or market standoff agreement will be able to sell our shares freely in the public market, except that any shares held by our affiliates, as defined in Rule 144 under the
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Securities Act, would only be able to be sold in compliance with Rule 144. Sales of a substantial number of such shares upon expiration of the lock-up and market standoff agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.
In addition, as of March 31, 2021, we had stock options outstanding that, if fully exercised, would result in the issuance of 40,272,111 shares of Class A common stock including 33,387,120 such shares that are subject to the Equity Award Exchange Agreement and exchangeable for an equal number of shares of Class B common stock. All of the shares of common stock issuable upon the exercise of stock options, and the 12,380,000 shares of Class A common stock reserved for future issuance under our 2021 Plan and ESPP, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance subject to existing lock-up or market standoff agreements and applicable vesting requirements.
Further, based on shares outstanding as of March 31, 2021, holders of 136,614,810 shares of our common stock will have rights after the completion of this offering, subject to certain conditions, to require us to file registration statements for the public resale of such shares or to include such shares in registration statements that we may file for us or other stockholders.
The dual-class structure of our common stock and voting agreement among us and the Class B stockholders will have the effect of concentrating voting control with our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC, who will hold in the aggregate 79.3% of the voting power of our capital stock following the completion of this offering, which will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Our Class B common stock has 20 votes per share and our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Immediately following the completion of this offering, all outstanding shares of our Class B common stock will be held by our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, and Tulco, LLC, our majority stockholder. Immediately following the completion of this offering, these holders will represent approximately 79.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters option to purchase additional shares and no purchases of shares of Class A common stock in this offering by Ms. Hasson, Ms. Spear or Tulco, LLC, including pursuant to our directed share program.
These stockholders will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change of control transaction. In addition, we and the Class B stockholders intend to enter into a voting agreement, effective immediately prior to the completion of this offering, with respect to the election of directors. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. See the section titled Description of Capital StockAnti-Takeover Provisions for additional information.
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We will be a controlled company within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Upon completion of this offering, our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, and Tulco, LLC will together control a majority of the voting power of our outstanding common stock and intend to enter into a voting agreement, effective immediately prior to the completion of this offering, with respect to the election of directors. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including:
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the requirement that a majority of the board of directors consist of independent directors; |
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the requirement that our nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; |
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the requirement that our compensation committee be composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
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the requirement for an annual performance evaluation of our governance and compensation committees. |
We intend to rely on these exemptions and, as a result, will not have a majority of independent directors on our board of directors or governance and compensation committees consisting entirely of independent directors upon the completion of this offering. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
We are an emerging growth company and our compliance with the reduced reporting and disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we have elected to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These provisions include, but are not limited to: being permitted to have only two years of audited financial statements and only two years of related selected financial data and managements discussion and analysis of financial condition and results of operations disclosures; being exempt from compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; being exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditors report on financial statements; being subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and not being required to hold nonbinding advisory votes on executive compensation or on any golden parachute payments not previously approved.
In addition, while we are an emerging growth company, we will not be required to comply with any new financial accounting standard until such standard is generally applicable to private companies. As a result, our financial statements may not be comparable to companies that are not emerging growth companies or elect not to avail themselves of this provision.
We may remain an emerging growth company until as late as December 31, 2026, the fiscal year-end following the fifth anniversary of the completion of this initial public offering, though we may cease to be an emerging growth company earlier under certain circumstances, including if (1) we have more than $1.07 billion in annual net revenues in any fiscal year, (2) we become a large accelerated filer, with at least $700 million of equity securities held by non-affiliates as of the end of the second quarter of that fiscal year or (3) we issue more than $1.0 billion of non-convertible debt over a three-year period.
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The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our Class A common stock less attractive to the extent we rely on the exemptions and relief granted by the JOBS Act. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may decline or become more volatile.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common 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 Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
The initial public offering price of our Class A common stock of $17.50 per share is substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding Class A common stock immediately after this offering. Therefore, if you purchase our Class A common stock in this offering, you will incur immediate dilution of $1.25 in the pro forma as adjusted net tangible book value per share from the price you paid assuming that stock price. In addition, following this offering, purchasers who bought shares from us in the offering will have contributed 61.7% of the total consideration paid to us by our stockholders to purchase 5,875,000 shares of Class A common stock to be sold by us in this offering, in exchange for acquiring approximately 3.6% of our total outstanding shares as of March 31, 2021, after giving effect to this offering. If the underwriters exercise their option to purchase additional shares, if we issue any additional stock options or warrants or any outstanding stock options are exercised, if RSUs are settled, or if we issue any other securities or convertible debt in the future, investors will experience further dilution.
We will have broad discretion in the use of the net proceeds we receive in this offering and may not use them in ways that prove to be effective.
We will have broad discretion in the application of the net proceeds we receive in 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 net proceeds from this offering, their ultimate use may vary substantially from their currently intended use, and it is possible that a substantial portion of the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition and results of operations could be harmed, and the market price for our Class A common stock could decline.
We do not currently intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not currently expect to declare or pay any dividends in the foreseeable future. Moreover, the terms of our existing credit agreement restrict our ability to pay dividends, and any additional debt we may incur in the future may include similar restrictions. In addition, Delaware law may impose requirements that may restrict our ability
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to pay dividends to holders of our common stock. As a result, stockholders must rely on sales of their Class A common stock after price appreciation, which may never occur as the only way to realize any future gains on their investment. As a result, investors seeking cash dividends should not purchase our Class A common stock. See Dividend Policy.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest more difficult, limit attempts by our stockholders to replace or remove our current management and depress the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective upon the completion of this offering may discourage, delay or prevent a merger, acquisition or other change in control of us or tender offer that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our Class A common stock, thereby depressing the market price of our Class A common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include that:
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provide for a dual-class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets, even if they own significantly less than a majority of the outstanding shares of our common stock; |
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restrict the forum for certain litigation against us to Delaware or the federal courts, as applicable; |
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our board of directors has the exclusive right to expand the size of our board of directors and to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
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our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; |
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our stockholders may act by written consent until such time as holders of our Class B common stock beneficially own less than a majority of the voting power, at which time our stockholders will no longer be able to act by written consent and instead must take action at an annual or special meeting of our stockholders; |
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a special meeting of stockholders may be called only by the chair of the board of directors, a chief executive officer, or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; |
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our amended and restated certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
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our board of directors may alter our amended and restated bylaws without obtaining stockholder approval; |
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the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; |
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stockholders must provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirors own slate of directors or otherwise attempting to obtain control of our company; and |
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our board of directors is authorized to issue shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our amended and restated certificate of incorporation that will be in effect on the completion of this offering will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters and the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our amended and restated certificate of incorporation will provide that, unless we otherwise consent in writing, (A) (1) any derivative action or proceeding brought on behalf of the Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Company to the Company or the Companys stockholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws (as either may be amended or restated) or as to which the Delaware General Corporation Law confers exclusive jurisdiction on the Court of Chancery of the State of Delaware or (4) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act. The choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition and results of operations. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation.
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General Risk Factors
Our quarterly results of operations may fluctuate, and if our operating and financial performance in any given period does not meet the guidance that we have provided to the public or the expectations of our investors and securities analysts, the trading price of our Class A common stock may decline.
Our quarterly results of operations may fluctuate for a variety of reasons, many of which are beyond our control. These reasons include those described in these risk factors as well as the following:
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fluctuations in product mix; |
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our ability to effectively launch and manage new products; |
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fluctuations in the levels or quality of inventory; |
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fluctuations in capacity as we expand our operations; |
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our success in engaging existing customers and attracting new customers; |
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the amount and timing of our operating expenses; |
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the timing and success of new products launches; |
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the impact of competitive developments and our response to those developments; |
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our ability to manage our existing business and future growth; and |
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economic and market conditions, particularly those affecting our industry. |
Fluctuations in our quarterly results of operations may cause those results to fall below the guidance that we have provided to the public or the expectations of our investors and securities analysts, which could cause the trading price of our Class A common stock to decline. Fluctuations in our results could also cause a number of other problems. For example, analysts or investors might change their models for valuing our Class A common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish and other unanticipated issues may arise.
In addition, we believe that our quarterly results of operations may vary in the future and that period-to-period comparisons of our results of operations may not be meaningful. You should not rely on the results of one quarter as an indication of future performance.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, or at all.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate. Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate, including as a result of any of the risks described in this prospectus.
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 customers covered by our market opportunity estimates will purchase our products at all or generate any particular level of net revenues for us. In addition, our ability to expand in any of our target markets depends on a number of factors, including the cost, performance and perceived value associated with our products and traditional medical apparel. Even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, or 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.
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Our results of operations could be adversely affected by natural disasters, public health crises, political crises or other catastrophic events.
Our principal offices and our fulfillment center are located in Southern California, an area which has a history of earthquakes, and are thus vulnerable to damage. Natural disasters, such as earthquakes, wildfires, hurricanes, tornadoes, floods and other adverse weather and climate conditions; unforeseen public health crises, such as epidemics and pandemics, including the ongoing COVID-19 pandemic; political crises, such as terrorist attacks, war and other political instability; or other catastrophic events, whether occurring in the United States or internationally, could disrupt our operations in any of our offices and fulfillment center or the operations of one or more of our third-party providers or vendors. In particular, these types of events could impact our merchandise supply chain, including the ability of third parties to manufacture and ship merchandise and our ability to ship products to customers from or to the impacted region. In addition, these types of events could negatively impact customer spending in the impacted regions. To the extent any of these events occur, our business, financial condition and results of operations could be adversely affected.
We are subject to periodic claims and litigation that could result in unexpected expenses and could ultimately be resolved against us.
From time to time, we may be involved in litigation and other proceedings, including matters related to commercial disputes, product liability, intellectual property, trade, customs laws and regulations, employment, regulatory compliance and other claims related to our business. For example, we and our co-founders and co-Chief Executive Officers are currently defendants in two actions brought by SPI in which SPI alleges, among other claims, false advertising, unfair business practices, untrue and misleading advertising, intentional interference with prospective economic relations, conversion and breach of fiduciary duty. See BusinessLegal Proceedings for additional information. While we believe the claims asserted by SPI in both actions are without basis or merit, and we intend to vigorously defend against such claims, these or any other proceeding or audit could result in significant settlement amounts, damages, fines, penalties or other relief such as an injunction, divert financial and management resources and result in significant legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies, or our insurance carriers may decline to fund such final settlements or judgments or all or part of the legal costs associated with the proceeding, which could have an adverse impact on our business, financial condition and results of operations. In addition, any such proceeding could negatively impact our brand equity and our reputation.
Our insurance may not provide adequate coverage against claims.
Some of the merchandise we sell may expose us to product liability claims and litigation or regulatory actions relating to personal injury. We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot or may not be insured against or that we believe are not economically reasonable to insure. Moreover, any loss incurred could exceed policy limits and policy payments made to us may not be made on a timely basis. In addition, some of our agreements with our suppliers may not indemnify us from product liability for a particular suppliers merchandise or our suppliers may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.
We will incur significant additional costs as a result of being a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
Upon completion of this offering, we expect to incur increased costs associated with corporate governance requirements that will become applicable to us as a public company, including rules and regulations of the SEC, under the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010, and the Exchange Act, as well as the rules of the NYSE. These rules and regulations are expected to significantly increase our accounting, legal and financial compliance costs and make some activities more time consuming.
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We expect such expenses to further increase after we are no longer an emerging growth company. We also expect these rules and regulations to make it more expensive for us to maintain directors and officers liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Furthermore, 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 timing of such costs. In addition, our management team will need to devote substantial attention to transitioning to interacting with public company analysts and investors and complying with the increasingly complex laws pertaining to public companies, which may divert attention away from the day-to-day management of our business. Increases in costs incurred or diversion of managements attention as a result of becoming a publicly traded company may adversely affect our business, financial condition and results of operations.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below the expectations of our investors and securities analysts, resulting in a decline in the trading price of our Class A common stock.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our 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 discussed in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, net revenues and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Our reported financial results may be negatively impacted by changes in U.S. GAAP.
U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. FASB has in the past issued new or revised accounting standards that superseded existing guidance and significantly impacted the reporting of financial results. Any future change in U.S. GAAP principles or interpretations could also have a significant effect on our reported financial results and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could negatively affect our reported results of operations.
If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information and the market price of our Class A common stock may be negatively affected.
As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual report after the completion of this offering, provide a management report on the internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We will be implementing the process and documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. 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 one or more material weaknesses in our internal control over financial reporting, our management will be unable to conclude that our internal control over
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financial reporting is effective. Moreover, when we are no longer an emerging growth company, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed. If we are unable to conclude that our internal control over financial reporting is effective, or, when we are no longer an emerging growth company, if our auditors were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our Class A common stock to decline. Internal control deficiencies could also result in a restatement of our financial results in the future.
In addition, we do not currently have an internal audit function. We will need to hire additional personnel to support our internal accounting and audit functions. If we are unable to hire additional personnel, our ability to report our results of operations on a timely and accurate basis could be impaired and we could suffer adverse regulatory consequences or violate NYSE listing standards. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have an adverse effect on our business, financial condition and results of operations.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Upon the closing of this initial public offering, we will become subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
We may require additional capital to support business growth, and this capital might not be available or may be available only by diluting existing stockholders.
We intend to continue making investments to support our business growth and may require additional funds to support this growth. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of international expansion efforts and other growth initiatives, the expansion of our marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business and prospects could fail or be adversely affected.
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Our business may be subject to uncertainty as a result of the COVID-19 pandemic.
The COVID-19 pandemic has magnified the indispensability of healthcare professionals and the demand for scrubs and other medical apparel. We experienced increased demand in 2020, while certain of our manufacturers experienced delays and shut-downs due to the COVID-19 pandemic. In order to manage the impact of these disruptions and meet our customers expectations, we increased our use of more expensive air freight during 2020, which increased our cost of goods sold. COVID-19 may to continue to adversely affect workforces, economies and financial markets globally, potentially leading to an economic downturn and a reduction in consumer spending or an inability for our suppliers, vendors or other parties with whom we do business to meet their contractual obligations, which could negatively impact our business and results of operations. We believe the COVID-19 pandemic has accelerated the awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth; however, there can be no assurance that these trends will continue and the ultimate impact of the COVID-19 pandemic on our business remains uncertain.
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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, estimate, potential, continue, anticipate, intend, expect, could, would, project, plan, target, 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:
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our future financial performance, including our expectations regarding our net revenues, cost of goods sold, gross profit, operating expenses and other operating results, as well as our ability to achieve and maintain future profitability; |
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our business plan, beliefs and objectives for future operations; |
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our ability to continue to experience and effectively manage our rapid growth; |
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our market opportunity; |
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our international expansion plans; |
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our ability to promote our brand; |
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our ability to attract new customers and to retain and drive repeat purchases from our existing customers; |
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our ability to develop new products and bring them to market in a timely manner; |
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our expectations concerning relationships with third parties; |
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our ability to maintain, protect and enhance our intellectual property; |
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the effects of increased competition in our markets and our ability to compete effectively; and |
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economic and industry trends, projected growth or trend analysis. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and short-term and long-term business operations and objectives. 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 very competitive and rapidly changing environment. 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. For example, 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
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potentially available relevant information. These statements are inherently uncertain, and 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 revised expectations, except as required by law.
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. See Where You Can Find Additional Information.
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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, including our own estimates, as well as assumptions that we have made that are based on such data and other similar sources, and on our knowledge of the market for our products and services. This information involves a number of 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.
Certain information in this prospectus is based on the following research study, which we commissioned: Frost & Sullivan, US and Global Total Addressable Market (TAM) Assessment for the Medical Apparel Market, April 2021. The Frost & Sullivan study included a quantitative and qualitative analysis of the industry through primary and secondary research, including a quantitative survey, encompassing 200 respondents in the United States, all of whom were either professionals or medical students over the age of 18, wear scrubs to work or at school and own or have purchased at least one set of scrubs in the past 12 months. The Frost & Sullivan study calculated the U.S. and global total addressable markets for the healthcare apparel industry by identifying the total number of individuals in the engaged population (which is defined as healthcare professionals and medical students) and multiplying that number by the estimated average spend of the engaged population on medical apparel (based on data aggregated from the survey study).
This prospectus also includes references to our Net Promoter Score, or NPS, which we use to measure our customers brand loyalty and satisfaction, and can range from -100 to +100 based on the question: How likely are you to recommend FIGS to a friend or colleague? Responses were collected from 0, Not Likely, to 10, Very Likely. Our NPS is based on approximately 11,500 customers who responded to the survey question, between January 1, 2021 and March 31, 2021, which was automatically generated via email 10 days after purchase, and randomly distributed across our markets. Our NPS was calculated by using the standard methodology of subtracting the percentage of customers who responded that they are not likely to recommend FIGS (6 or lower) from the percentage of customers who responded that they are very likely to recommend FIGS (9 or 10). The NPS gives no weight to customers who declined to answer the survey question. This method is substantially consistent with how businesses across our industry and other industries typically calculate their NPS.
Certain monetary amounts, percentages and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
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We estimate that the net proceeds from the sale of 5,875,000 shares of our Class A common stock in this offering at an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $91.7 million. We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholder.
A $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $5.6 million, assuming the number of shares of our Class A common stock offered by us remains the same, and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares in the number of shares of our Class A common stock offered by us would increase or decrease, as applicable, the net proceeds that we receive from this offering by approximately $16.5 million, assuming that the assumed initial public offering price of $17.50 remains the same, and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our Class A common stock, increase our brand awareness and facilitate access to the public equity markets for us and our stockholders. We primarily intend to use the net proceeds that we receive from this offering for working capital and other general corporate purposes, which may include research and development and marketing activities, 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.
As of the date of this prospectus, we cannot specify with certainty the specific allocations or all of the particular uses for the net proceeds to be received upon completion of this offering. The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions, which could change in the future as or plans and business conditions evolve. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application and specific allocations of the net proceeds of this offering. Pending the uses described above, we intend to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments or other securities.
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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 Credit Agreement contains restrictions on our ability to pay cash dividends on our capital stock. See the section titled Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for additional information.
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The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021 on:
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an actual basis; |
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a pro forma basis to give effect to (1) the RSU Net Settlement and the related increase in accrued expenses and other current liabilities and a corresponding decrease in additional paid-in capital for the associated tax liabilities, (2) stock-based compensation expenses of approximately $17.4 million related to RSUs for which the service-based vesting condition had been satisfied and for which the liquidity-based vesting condition will be satisfied in connection with this offering, (3) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, and (4) the Common Stock Reclassification and Exchange; and |
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a pro forma as adjusted basis to give effect to (1) the pro forma adjustments described above and (2) the sale and issuance by us of 5,875,000 shares of our Class A common stock offered in this offering at an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
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The pro forma as adjusted information below is illustrative only, and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering. You should read this table together with our financial statements and related notes, and the sections titled Use of Proceeds, Selected Financial and Other Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this prospectus.
As of March 31, 2021 | ||||||||||||
Actual |
Pro
Forma |
Pro
Forma As Adjusted(1) |
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(unaudited) | ||||||||||||
(in thousands, except share and per
share data) |
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Cash and cash equivalents |
$ | 73,837 | $ | 73,837 | $ | 167,051 | ||||||
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Stockholders equity: |
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Preferred stock, $0.0001 par value per share: zero shares authorized, issued, and outstanding, actual; 100,000,000 shares authorized, zero shares issued and outstanding, pro forma and pro forma as adjusted |
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Common stock, $0.0001 par value per share: 207,000,000 shares authorized, 154,649,160 shares issued and outstanding, actual; zero shares authorized, issued and outstanding, pro forma and pro forma as adjusted |
15 | | | |||||||||
Class A common stock, $0.0001 par value per share: zero shares authorized, issued, and outstanding, actual; 1,000,000,000 shares authorized, 143,375,131 shares issued and outstanding, pro forma; 1,000,000,000 shares authorized, 149,250,131 shares issued and outstanding, pro forma as adjusted |
| 14 | 15 | |||||||||
Class B common stock, $0.0001 par value per share: zero shares authorized, issued and outstanding, actual; 150,000,000 shares authorized, 12,136,315 shares issued and outstanding, pro forma and pro forma as adjusted |
| 1 | 1 | |||||||||
Additional paid-in capital |
75,313 | 88,978 | 180,692 | |||||||||
Retained earnings |
38,927 | 21,524 | 21,524 | |||||||||
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Total stockholders equity |
114,255 | 110,517 | 202,231 | |||||||||
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Total capitalization |
$ | 114,255 | $ | 110,517 | $ | 202,231 | ||||||
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(1) |
A $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease, as applicable, each of the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by approximately $5.6 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease, as applicable, each of the amount of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization by approximately $16.5 million, assuming that the assumed initial public offering price, which is the midpoint of the price range set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. |
The number of shares of our common stock to be outstanding after this offering is based upon 143,375,131 shares of our Class A common stock and 12,136,315 shares of our Class B common stock outstanding, in each case, as of March 31, 2021, after giving effect to the RSU Net Settlement and the Common Stock Reclassification and Exchange, as if each had occurred as of March 31, 2021. This does not include the following additional equity awards that have already been granted:
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40,272,111 shares of our Class A common stock issuable upon the exercise of outstanding stock options under our 2016 Plan as of March 31, 2021, at a weighted-average exercise price of $3.67 per |
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share, including 33,387,120 shares underlying stock option awards that will be subject to the Equity Award Exchange Agreement; |
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3,719,682 shares of our Class A common stock issuable upon the vesting and settlement of outstanding RSUs under our 2016 Plan as of March 31, 2021, all of which will be subject to the Equity Award Exchange Agreement; and |
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204,750 shares of Class A common stock issuable upon the exercise of stock options granted after March 31, 2021 under our 2016 Plan at an exercise price of $11.16 per share. |
This also does not include the following additional shares of our Class A common stock that have been reserved for future issuance:
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10,320,000 shares of our Class A common stock reserved for future issuance under our 2021 Plan, which will become effective in connection with the completion of this offering (which number includes an estimated 2,268,352 shares of our Class A common stock underlying stock options, 458,991 shares of our Class A common stock issuable upon vesting and settlement of RSUs and 63,434 stock awards to be granted pursuant to our 2021 Plan that will become effective in connection with this offering, based upon an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus); and |
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2,060,000 shares of our Class A common stock reserved for issuance under our ESPP, which will become effective in connection with this offering. |
Following the completion of this offering, and pursuant to the Equity Award Exchange Agreement to be entered into between us and our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, each of Ms. Hasson and Ms. Spear shall have a right to require us to exchange any shares of Class A common stock received upon the exercise of stock options or the vesting and settlement of RSUs, in each case granted under our 2016 Plan and outstanding prior to the date of effectiveness of the registration statement of which this prospectus forms a part, for an equivalent number of shares of Class B common stock. This includes an aggregate of 33,387,120 shares underlying outstanding options and an aggregate of 3,719,682 shares underlying outstanding RSUs held by Ms. Hasson and Ms. Spear, after giving effect to the RSU Net Settlement. The Equity Award Exchange Agreement does not cover any equity awards granted to Ms. Hasson or Ms. Spear in connection with or following the completion of this offering.
On the date immediately prior to the date of this prospectus, any remaining shares of common stock available for issuance under our 2016 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2021 Plan, and we will cease granting awards under the 2016 Plan. Our 2021 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder, which are not reflected in the numbers above. See the section titled Executive CompensationExecutive Compensation Arrangements for additional information.
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If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of Class A common stock in this initial public offering and the pro forma as adjusted net tangible book value per share of Class A common stock immediately after this offering.
As of March 31, 2021, our historical net tangible book value was $112.4 million, or $0.73 per share. Our historical net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding as of March 31, 2021.
As of March 31, 2021, our pro forma net tangible book value was approximately $108.7 million, or $0.70 per share. 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 March 31, 2021 after giving effect to (1) the RSU Net Settlement and the related increase in accrued expenses and other current liabilities and a corresponding decrease in additional paid-in capital for the associated tax liabilities, (2) stock-based compensation expenses of approximately $17.4 million related to RSUs for which the service-based vesting condition had been satisfied and for which the liquidity-based vesting condition will be satisfied in connection with this offering, (3) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, and (4) the Common Stock Reclassification and Exchange.
After giving effect to our sale in this offering of 5,875,000 shares of our Class A common stock, at an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been approximately $202.2 million, or $1.25 per share. This represents an immediate increase in pro forma net tangible book value of $0.55 per share to our existing stockholders and an immediate dilution of $16.25 per share to investors purchasing Class A common stock in this offering at the assumed initial public offering price. We determine dilution by subtracting our pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock in this offering. The following table illustrates this dilution:
Assumed initial public offering price per share |
$ | 17.50 | ||||||
Net tangible book value per share as of March 31, 2021 |
$ | 0.73 | ||||||
Pro forma decrease in net tangible book value per share |
(0.03 | ) | ||||||
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Pro forma net tangible book value per share as of March 31, 2021 |
0.70 | |||||||
Increase in pro forma net tangible book value per share attributable to new investors participating in this offering |
0.55 | |||||||
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Pro forma as adjusted net tangible book value per share after this offering |
$ | 1.25 | ||||||
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Dilution in pro forma net tangible book value per share to new investors in this offering |
$ | 16.25 | ||||||
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A $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the price range reflected on the cover of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share after this offering by $0.04 per share and would increase or decrease, as applicable, the dilution per share to new investors in this offering by $0.96 per share, assuming the number of shares of Class A common stock offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. Similarly, each increase or decrease of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase or decrease, as applicable, the pro forma as adjusted net
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tangible book value per share after this offering by $0.10 and $0.09 per share, respectively, and would increase or decrease, as applicable, the dilution to new investors by $0.10 and $0.09 per share, respectively, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us.
The following table summarizes, on a pro forma as adjusted basis as of March 31, 2021, after giving effect to the pro forma adjustments described above, the difference between existing stockholders and new investors purchasing shares of Class A 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 $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
Shares Purchased | Total Consideration |
Average Price
Per Share |
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Number | Percent | Amount | Percent | |||||||||||||||||
Existing stockholders |
155,511,446 | 96.4 | % | $ | 63,844,459 | 38.3 | % | $ | 0.41 | |||||||||||
New investors |
5,875,000 | 3.6 | 102,812,500 | 61.7 | 17.50 | |||||||||||||||
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Total |
161,386,446 | 100.0 | % | $166,656,959 | 100.0 | % | ||||||||||||||
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A $1.00 increase or decrease in the assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease, as applicable, total consideration paid by new investors and total consideration paid by all stockholders by $8.8 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus remains the same.
Sales of shares of our Class A common stock by the selling stockholder in this offering will reduce the number of shares of common stock held by existing stockholders to 138,886,446, or approximately 86.1% of the total shares of common stock outstanding after this offering, and will increase the number of shares held by new investors to 22,500,000, or approximately 13.9% of the total shares of common stock outstanding after this offering.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters option to purchase additional shares of our Class A common stock. If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own 84.0% and our new investors would own 16.0% of the total number of shares of our common stock outstanding after this offering.
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. To the extent we issue any additional stock options or any outstanding stock options or warrant 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 upon 143,375,131 shares of our Class A common stock and 12,136,315 shares of our Class B common stock outstanding, in each case, as of March 31, 2021, after giving effect to the RSU Net Settlement and the Common Stock Reclassification and Exchange, as if each had occurred as of March 31, 2021. This does not include the following additional equity awards that have already been granted:
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40,272,111 shares of our Class A common stock issuable upon the exercise of outstanding stock options under our 2016 Plan as of March 31, 2021, at a weighted-average exercise price of $3.67 per share, including 33,387,120 shares underlying stock option awards that will be subject to the Equity Award Exchange Agreement; |
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|
3,719,682 shares of our Class A common stock issuable upon the vesting and settlement of outstanding RSUs under our 2016 Plan as of March 31, 2021, all of which will be subject to the Equity Award Exchange Agreement; and |
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204,750 shares of Class A common stock issuable upon the exercise of stock options granted after March 31, 2021 under our 2016 Plan at an exercise price of $11.16 per share. |
This also does not include the following additional shares of our Class A common stock that have been reserved for future issuance:
|
10,320,000 shares of our Class A common stock reserved for future issuance under our 2021 Plan, which will become effective in connection with the completion of this offering (which number includes an estimated 2,268,352 shares of our Class A common stock underlying stock options, 458,991 shares of our Class A common stock issuable upon vesting and settlement of RSUs and 63,434 stock awards to be granted pursuant to our 2021 Plan that will become effective in connection with this offering, based upon an assumed initial public offering price of $17.50 per share, which is the midpoint of the price range set forth on the cover of this prospectus); and |
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2,060,000 shares of our Class A common stock reserved for issuance under our ESPP, which will become effective in connection with this offering. |
Following the completion of this offering, and pursuant to the Equity Award Exchange Agreement to be entered into between us and our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, each of Ms. Hasson and Ms. Spear shall have a right to require us to exchange any shares of Class A common stock received upon the exercise of stock options or the vesting and settlement of RSUs, in each case granted under our 2016 Plan and outstanding prior to the date of effectiveness of the registration statement of which this prospectus forms a part, for an equivalent number of shares of Class B common stock. This includes an aggregate of 33,387,120 shares underlying outstanding options and an aggregate of 3,719,682 shares underlying outstanding RSUs held by Ms. Hasson and Ms. Spear, after giving effect to the RSU Net Settlement. The Equity Award Exchange Agreement does not cover any equity awards granted to Ms. Hasson or Ms. Spear in connection with or following the completion of this offering.
On the date immediately prior to the date of this prospectus, any remaining shares of common stock available for issuance under our 2016 Plan will be added to the shares of our Class A common stock reserved for issuance under our 2021 Plan, and we will cease granting awards under the 2016 Plan. Our 2021 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder, which are not reflected in the numbers above. See the section titled Executive CompensationExecutive Compensation Arrangements for additional information.
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The selected statements of operations data for the years ended December 31, 2019 and 2020 and the selected balance sheet data as of December 31, 2019 and 2020 have been derived from our audited financial statements included elsewhere in this prospectus. We derived our selected statement of operations data for the three months ended March 31, 2020 and 2021 and the balance sheet data as of March 31, 2021 from our unaudited financial statements included elsewhere in this prospectus. In our opinion, the unaudited interim financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such interim financial statements. You should read the financial data set forth below in conjunction with our financial statements and the accompanying notes and the information in Managements Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period in the future and our interim results are not necessarily indicative of the results that may be expected for the full fiscal year or any other future period.
Years Ended December 31, |
Three Months Ended
March 31, |
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2019 | 2020 | 2020 | 2021 | |||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||
Statements of Operations Data: |
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Net revenues |
$ | 110,494 | $ | 263,112 | $ | 31,967 | $ | 87,079 | ||||||||
Cost of goods sold |
31,158 | 72,888 | 7,655 | 24,719 | ||||||||||||
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Gross profit |
79,336 | 190,224 | 24,312 | 62,360 | ||||||||||||
Operating expenses: |
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Selling |
24,840 | 51,896 | 6,739 | 17,114 | ||||||||||||
Marketing |
33,193 | 38,852 | 7,337 | 10,840 | ||||||||||||
General and administrative(1) |
21,650 | 41,536 | 6,200 | 18,346 | ||||||||||||
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Total operating expenses |
79,683 | 132,284 | 20,276 | 46,300 | ||||||||||||
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Net (loss) income from operations |
(347 | ) | 57,940 | 4,036 | 16,060 | |||||||||||
Other income (loss), net |
459 | 136 | 98 | (38 | ) | |||||||||||
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Net income before income tax provision |
112 | 58,076 | 4,134 | 16,022 | ||||||||||||
Provision for income taxes |
| 8,318 | | 4,582 | ||||||||||||
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Net income |
$ | 112 | $ | 49,758 | 4,134 | 11,440 | ||||||||||
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Basic earnings per share |
$ | | $ | 0.32 | $ | 0.03 | $ | 0.07 | ||||||||
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Diluted earnings per share |
$ | | $ | 0.30 | $ | 0.03 | $ | 0.07 | ||||||||
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Weighted-average shares outstanding-basic(2) |
153,052,983 | 153,327,308 | 153,052,983 | 154,501,660 | ||||||||||||
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Weighted-average shares outstanding-diluted(2) |
153,624,013 | 163,331,348 | 153,655,166 | 168,012,364 | ||||||||||||
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(1) |
Includes stock-based compensation expense of $0.2 million and $8.7 million for the years ended December 31, 2019 and 2020, respectively, and $0.1 million and $5.0 million for the three months ended March 31, 2020 and 2021, respectively. |
(2) |
See Note 13 to our financial statements included elsewhere in this prospectus for an explanation of the calculations of our basic and diluted earnings per share and the weighted-average number of shares used in the computation of the per share amounts. |
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As of December 31, |
As of March 31,
2021 |
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2019 | 2020 | |||||||||||
(in thousands) | ||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 38,353 | $ | 58,133 | $ | 73,837 | ||||||
Total assets |
62,598 | 133,855 | 161,240 | |||||||||
Total liabilities |
23,784 | 36,178 | 46,985 | |||||||||
Total stockholders equity |
38,814 | 97,677 | 114,255 |
Non-GAAP Financial Measures
Years Ended
December 31, |
Three Months Ended
March 31, |
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2019 | 2020 | 2020 | 2021 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Adjusted EBITDA |
$ | 1,728 | $ | 69,094 | $ | 4,604 | $ | 24,349 | ||||||||
Adjusted EBITDA Margin |
1.6 | % | 26.3 | % | 14.4 | % | 28.0 | % | ||||||||
Net cash (used in) provided by operating activities |
6,531 | 21,748 | (821 | ) | 16,109 | |||||||||||
Free cash flow |
1,770 | 19,486 | (1,793 | ) | 15,581 |
We report our financial results in accordance with U.S. GAAP. In addition to our U.S. GAAP financial results, we believe the non-GAAP financial measures, Adjusted EBITDA, Adjusted EBITDA margin and free cash flow, are useful in evaluating our performance. Our non-GAAP financial measures should not be considered in isolation from, or as substitutes for, financial information prepared in accordance with U.S. GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
We calculate Adjusted EBITDA as net income adjusted to exclude: other income, net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation expense; transaction costs; and expenses related to non-ordinary course disputes. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by net revenues.
Management believes that excluding certain non-cash items and items that may vary substantially in frequency and magnitude period-to-period from net income provides useful supplemental measures that assist in evaluating our ability to generate earnings, provide consistency and comparability with our past financial performance and facilitate period-to-period comparisons of our core operating results as well as the results of our peer companies.
There are several limitations related to the use of Adjusted EBITDA and Adjusted EBITDA Margin as analytical tools, including:
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other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently, which reduces their usefulness as a comparative measure; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other income (loss), net; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect any gain or loss on disposal of assets; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect our tax provision, which reduces cash available to us; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect recurring, non-cash expenses of depreciation and amortization of property and equipment and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect the impact of stock-based compensation expense; |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs; and |
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Adjusted EBITDA and Adjusted EBITDA Margin do not reflect expenses related to non-ordinary course disputes. |
The following table reflects a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure prepared in accordance with U.S. GAAP:
Years Ended
December 31, |
Three Months Ended
March 31, |
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2019 | 2020 | 2020 | 2021 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net income |
$ | 112 | $ | 49,758 | $ | 4,134 | $ | 11,440 | ||||||||
Add (deduct): |
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Other income (loss), net |
(459 | ) | (136 | ) | (98 | ) | 38 | |||||||||
Gain/loss on disposal |
120 | 2 | | | ||||||||||||
Provision for income taxes |
| 8,318 | | 4,582 | ||||||||||||
Depreciation and amortization expense(1) |
517 | 946 | 218 | 313 | ||||||||||||
Stock-based compensation expense |
179 | 8,713 | 50 | 5,015 | ||||||||||||
Transaction costs |
| 296 | | 525 | ||||||||||||
Expenses related to non-ordinary course disputes(2) |
1,259 | 1,197 | 300 | 2,436 | ||||||||||||
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Adjusted EBITDA |
$ | 1,728 | $ | 69,094 | $ | 4,604 | $ | 24,349 | ||||||||
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Adjusted EBITDA Margin |
1.6 | % | 26.3 | % | 14.4 | % | 28.0 | % |
(1) |
Excludes amortization of debt issuance costs included in Other income (loss), net. |
(2) |
Represents legal fees incurred in connection with the litigation claims described in the section titled BusinessLegal Proceedings. |
Free Cash Flow
We calculate free cash flow as net cash (used in) provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs. Management believes free cash flow is a useful measure of liquidity and an additional basis for assessing our ability to generate cash. There are limitations related to the use of free cash flow as an analytical tool, including: other companies may calculate free cash flow differently, which reduces its usefulness as a comparative measure; and free cash flow does reflect our future contractual commitments and it does not represent the total residual cash flow for a given period.
The following table presents a reconciliation of free cash flow to net cash (used in) provided by operating activities, the most directly comparable financial measure prepared in accordance with U.S. GAAP:
Years Ended
December 31, |
Three Months Ended
March 31, |
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2019 | 2020 | 2020 | 2021 | |||||||||||||
(in thousands) | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | 6,531 | $ | 21,748 | $ | (821 | ) | $ | 16,109 | |||||||
Less: capital expenditures |
(4,761 | ) | (2,262 | ) | (972 | ) | (528 | ) | ||||||||
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Free cash flow |
$ | 1,770 | $ | 19,486 | $ | (1,793 | ) | $ | 15,581 | |||||||
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled Selected Financial Data and the financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled Special Note Regarding Forward-Looking Statements and Risk Factors for a discussion of forward-looking statements and 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.
Overview
Our mission is to celebrate, empower and serve those who serve others.
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs aregiving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
We have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized productelevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industrys category-defining healthcare apparel and lifestyle brand.
We were founded in 2013 by our co-Chief Executive Officers Heather Hasson and Trina Spear. Since our inception, our business has evolved across multiple dimensions and achieved the following significant milestones:
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We generate revenue by selling technically advanced apparel for the modern healthcare professional. Our offerings include scrubwear, as well as lifestyle apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks and face shields. We design all of our products in-house, leverage third-party suppliers and manufacturers to produce our raw materials and finished products, and utilize shallow initial buys and data-driven repurchasing decisions to test new products. We directly and actively manage every step of our product development and production process to ensure that our extremely high quality standards are met. We have a highly efficient merchandising model. Due to the non-discretionary, replenishment nature of healthcare apparel, we maintain low inventory risk driven by a high volume of repeat purchases and a focus on our core scrubs offerings. In 2020, we generated 82% of net revenues from our 13 core scrubwear styles, 5% of net revenues from limited edition scrubwear styles, and the remaining 13% from our lifestyle apparel and other non-scrub offerings. We market and sell 98% of our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers.
We have compelling customer economics, driven by our differentiated product offerings, community-driven brand, loyal customer following and efficient customer acquisition model. Over the last eight years, we have experienced significant customer growth, close to doubling our number of active customers every year since inception. In 2020, we served approximately 1.3 million active customers. Our customers primarily come to us through word of mouth referrals, as well as through our data-driven brand and performance marketing efforts. As our brand awareness has grown and our data analytics capabilities have evolved, our marketing efficiency has improved. Between 2018 and 2020, our customer acquisition costs decreased by 61%. Our new customers spend on average approximately $215 with us during their first 12 months, which has remained consistent over the past three years. We are profitable on a first purchase basis, and our first order contribution profit to customer acquisition cost, or CAC, has increased with each annual customer cohort since 2018, rising to 1.3x in 2020. See the sections titled Key Operational and Business Metrics for a definition of active customers and Factors Affecting Our Performance for a definition of contribution profit and CAC.
We have demonstrated rapid growth and strong profitability and cash flow generation. In 2020, we achieved the following results compared to 2019:
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Expanded our community of active customers by 118% from 0.6 million to approximately 1.3 million; |
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Increased net revenues from $110.5 million to $263.1 million, representing 138% year-over-year growth; |
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Increased gross margin by 50 basis points from 71.8% to 72.3%; |
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Improved net operating (loss) income from $(0.3) million to $57.9 million; |
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Increased Adjusted EBITDA from $1.7 million to $69.1 million, representing an Adjusted EBITDA margin of 26.3% in 2020; |
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Increased cash flow from operations from $6.5 million to $21.7 million; and |
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Increased free cash flow from $1.8 million to $19.5 million. |
See the section titled Selected Financial DataNon-GAAP Financial Measures for information regarding Adjusted EBITDA, Adjusted EBITDA margin and free cash flow, including a reconciliation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.
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Key Operational and Business Metrics
In addition to the measures presented in our financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
Years Ended
December 31, |
Three Months Ended
March 31, |
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2019 | 2020 | 2020 | 2021 | |||||||||||||
Active customers (in thousands) |
596 | 1,300 | 676 | 1,497 | ||||||||||||
Average order value |
$ | 95 | $ | 94 | $ | 92 | $ | 100 | ||||||||
Adjusted EBITDA (in thousands)(1) |
$ | 1,728 | $ | 69,094 | $ | 4,604 | $ | 24,349 | ||||||||
Adjusted EBITDA Margin(1) |
1.6 | % | 26.3 | % | 14.4 | % | 28.0 | % | ||||||||
Free cash flow (in thousands)(1) |
$ | 1,770 | $ | 19,486 | $ | (1,793 | ) | $ | 15,581 |
(1) |
See the section titled Selected Financial DataNon-GAAP Financial Measures for information regarding Adjusted EBITDA, Adjusted EBITDA Margin and free cash flow, including a reconciliation to the most directly comparable financial measure prepared in accordance with U.S. GAAP. |
Active Customers
The number of active customers is an important indicator of our growth as it reflects the reach of our digital platform, our brand awareness and overall value proposition. We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. In any particular period, we determine our number of active customers by counting the total number of customers who have made at least one purchase in the preceding 12-month period, measured from the last date of such period.
Average Order Value
We define average order value as the sum of the total net revenues in a given period divided by the total orders placed in that period. Total orders are the summation of all completed individual purchase transactions in a given period. We believe our relatively high average order value demonstrates the premium nature of our product. Average order value may fluctuate as we expand into and increase our presence in additional product categories and price points as well as expand internationally.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures that our management uses to assess our operating performance. We calculate Adjusted EBITDA as net income adjusted to exclude: other income, net; gain/loss on disposal of assets; provision for income taxes; depreciation and amortization expense; stock-based compensation expense; transaction costs; and legal expenses related to non-ordinary course disputes. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by net revenues.
Free Cash Flow
Free cash flow is a key performance measure that our management uses to assess our ability to generate cash. We calculate free cash flow as cash flows (used in) provided by operating activities reduced by capital expenditures, including purchases of property and equipment and capitalized software development costs.
Factors Affecting Our Performance
Brand Awareness and Loyalty
Our ability to promote and maintain brand awareness and loyalty is critical to our success. We have a significant opportunity to continue to grow our brand awareness and loyalty through word of mouth, brand
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marketing and performance marketing. We have made significant investments to strengthen the FIGS brand through our marketing strategy, which includes brand marketing campaigns across platforms, including email, digital, display, site, direct-mail, commercials, social media and Ambassadors, as well as performance marketing efforts, including retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. We plan to continue to invest in our brand and performance marketing to help drive our future growth.
Net Revenues per Active Customer
We believe the growth in our net revenues per active customer demonstrates our increasing value proposition for our customer base. We calculate net revenues per active customer as the total net revenues for a specified time period divided by the number of active customers during that same time period. Our historical growth in net revenues per active customer is presented in the graph below. Through our differentiated core products, limited edition color and style releases and lifestyle apparel and other non-scrub products, we have repeatedly drawn customers back to our digital platform and increased our net revenues per active customer. As we continue to expand our products to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers and increase our net revenues per active customer over time. Our future growth will depend in part on our ability to continue to increase our net revenues per active customer.
Net Revenues per Active Customer
Customer Acquisition Cost
Our business performance depends in part on our continued ability to cost-effectively acquire new customers. We define customer acquisition cost, or CAC, as performance and brand marketing expense attributable to both new customer acquisition and repeat customer retention in a period divided by the customers acquired during that same period. Our strategic investments in performance marketing, such as retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app, compounded with strong brand awareness driven largely through word of mouth, have led to significant improvements in CAC, which declined 61% from 2018 to 2020, as shown in the graph below. In addition, in 2020, we successfully increased our marketing efficiency such that we achieved 1.3x our CAC on a customers first purchase contribution profit. Contribution profit is defined as gross profit, less any shipping variable costs, fulfillment variable costs, packaging variable costs and merchant processing fees.
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Customer Acquisition Cost
Customer Retention and Engagement
Our continued success depends in part on our ability to retain, and drive repeat purchases from, our existing customers. We monitor retention across our entire customer base. Our goal is to attract and convert visitors into active customers and foster relationships that drive repeat purchases. As of December 31, 2020, we had approximately 1.3 million active customers, up from 596,000 customers as of December 31, 2019. Approximately 62% of our net revenues in 2020 came from repeat customers, which we define as customers who have made a prior purchase with us in any period. Over the last four years, we have consistently increased the percentage of net revenues from repeat customers while also continuing to increase the number of new customers acquired, as shown in the graph below. These newly acquired customers frequently make one or more repeat purchase in the same year, which is supplemented by the embedded growth from prior-year cohorts customers who continue to purchase from us.
Net Revenues from New Customers and Repeat Customers
The increasing share of our net revenues from customers who have made a previous purchase with us in a prior year reflects our customer loyalty and the net revenues retention behavior we see in our cohorts. We believe the increasing contribution from repeat customers is reflective of our ability to engage and retain our customers through our differentiated product offerings, community-driven brand and customized customer experience. Cohort net revenues retention is calculated as net revenues attributable to a given customer cohort as a percentage of total net revenues attributable to the same customer cohort during the prior year. On a weighted-average net revenues basis across the 2017, 2018 and 2019 cohorts, we retained 60% of the cohorts net revenues between the year of initial purchase to the following first full year. On a weighted-average net revenues basis
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across the 2017 and 2018 cohorts, we retained 94% of the cohorts net revenues from the first full year to the second full year. In 2020, we retained 75% of the 2019 and prior cohorts net revenues, including 100% of the 2019 net revenues generated by 2018 and prior cohorts. This cohort behavior demonstrates, as depicted in the graph below, our ability to not only retain customers, but also to increase our customers spend as they place orders more frequently.
Cohort Net Revenue Retention
Impact of COVID-19
The COVID-19 pandemic has magnified the indispensability of healthcare professionals. Due to the pandemic, more healthcare professionals are also choosing to wear medical apparel, and a greater number of hospitals, medical offices and clinics are requiring staff to wear scrubs and other medical apparel while at work. In addition, the ability to purchase through eCommerce channels has become increasingly important to consumers during the pandemic, as many businesses, including brick-and-mortar retail stores, have been ordered to close and people have been required to stay at home. We experienced increased demand in 2020, while certain of our manufacturers experienced delays and shut-downs due to the COVID-19 pandemic. In order to manage the impact of these disruptions and meet our customers expectations, we increased our use of more expensive air freight during 2020, which increased our cost of goods sold. We believe the pandemic has accelerated the awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth; however, there can be no assurance that these trends will continue and the ultimate impact of the COVID-19 pandemic remains uncertain.
Components of Results of Operations
Net Revenues
Net revenues consist of sales of healthcare apparel, footwear and other products primarily through our digital platform. We recognize product sales at the time control is transferred to the customer, which is when the product is shipped to the customer. Net revenues represent the sale of these items and shipping revenue, net of estimated returns and discounts. Net revenues are primarily driven by the growth in the number of active customers, the frequency with which customers purchase and the average order value.
Cost of Goods Sold
Cost of goods sold consists principally of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other
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miscellaneous shrinkage. Our cost of goods sold has and may continue to fluctuate with the cost of the raw materials used in our products. As we continue to scale, we expect cost of goods sold to minimally decrease as a percentage of net revenues.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has fluctuated historically and may continue to fluctuate from period to period based on a number of factors, including the timing and mix of the product offerings we sell as well as our ability to reduce costs, in any given period.
Operating Expenses
Our operating expenses consist of selling, marketing and general and administrative expenses.
Selling
Selling expenses represent the costs incurred for fulfillment expenses and selling and distribution expenses. Fulfillment expenses consist of costs incurred in operating and staffing a third-party fulfillment center, including costs associated with inspecting and warehousing inventories and picking, packaging and preparing customer orders for shipment. Selling and distribution expenses consist primarily of shipping and other transportation costs incurred delivering merchandise to customers and from customers returning merchandise, merchant processing fees and packaging. We expect fulfillment, selling and distribution costs to increase in absolute dollars as we increase our net revenues.
Marketing
Marketing expenses consist primarily of online performance marketing costs, such as retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Marketing expenses also include our spend on brand marketing channels, including billboards, podcasts, commercials, photo and video shoot development, expenses associated with our Ambassador Program and other forms of online and offline marketing. We expect our marketing expenses to increase in absolute dollars as we continue to grow our business.
General and Administrative
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation, other related costs and other general overhead, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees. We expect our general and administrative expenses to increase in absolute dollars as we continue to grow our business. We also anticipate that we will incur significant additional legal, accounting, insurance, investor relations and other expenses to support our transition to and operations as a public company, including costs associated with our compliance with the Sarbanes-Oxley Act.
Other Income, Net
Other income, net consists of interest income or expense associated with our debt financing arrangements, amortization of debt issuance costs and interest income earned on investments, as well as gain or loss on foreign currency, primarily driven by payment to vendors for amounts not denominated in U.S. dollars.
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Provision for Income Taxes
Our provision for income taxes consists of an estimate of federal and state income taxes based on enacted Federal and state tax rates, as adjusted for allowable credits, deductions and uncertain tax positions.
Results of Operations
The following table sets forth our results of operations for the periods presented:
Years Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2019 | 2020 | 2020 | 2021 | |||||||||||||
(in thousands) | ||||||||||||||||
Statements of Operations Data: |
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Net revenues |
$ | 110,494 | $ | 263,112 | $ | 31,967 | $ | 87,079 | ||||||||
Cost of goods sold |
31,158 | 72,888 | 7,655 | 24,719 | ||||||||||||
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Gross profit |
79,336 | 190,224 | 24,312 | 62,360 | ||||||||||||
Operating expenses: |
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Selling |
24,840 | 51,896 | 6,739 | 17,114 | ||||||||||||
Marketing |
33,193 | 38,852 | 7,337 | 10,840 | ||||||||||||
General and administrative(1) |
21,650 | 41,536 | 6,200 | 18,346 | ||||||||||||
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Total operating expenses |
79,683 | 132,284 | 20,276 | 46,300 | ||||||||||||
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Net (loss) income from operations |
(347 | ) | 57,940 | 4,036 | 16,060 | |||||||||||
Other income (loss), net |
459 | 136 | 98 | (38 | ) | |||||||||||
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Net income before income tax provision |
112 | 58,076 | 4,134 | 16,022 | ||||||||||||
Provision for income taxes |
| 8,318 | | 4,582 | ||||||||||||
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Net income |
$ | 112 | $ | 49,758 | $ | 4,134 | $ | 11,440 | ||||||||
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(1) |
Includes stock-based compensation expense of $0.2 million and $8.7 million for the years ended December 31, 2019 and 2020, respectively, and $0.1 million and $5.0 million for the three months ended March 31, 2020 and 2021, respectively. |
The following table sets forth our results of operations as a percentage of net revenues for the periods presented:
Years Ended December 31, | Three Months Ended March 31, | |||||||||||||||
2019 | 2020 | 2020 | 2021 | |||||||||||||
Statements of Operations Data, as a percentage of net revenues: |
||||||||||||||||
Net revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of goods sold |
28.2 | 27.7 | 23.9 | 28.4 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Gross profit |
71.8 | 72.3 | 76.1 | 71.6 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling |
22.5 | 19.7 | 21.1 | 19.7 | ||||||||||||
Marketing |
30.0 | 14.8 | 23.0 | 12.4 | ||||||||||||
General and administrative |
19.6 | 15.8 | 19.4 | 21.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
72.1 | 50.3 | 63.4 | 53.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (loss) income from operations |
(0.3 | ) | 22.0 | 12.6 | 18.4 | |||||||||||
Other income, net |
0.4 | 0.1 | 0.3 | 0.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income before income tax provision |
0.1 | 22.1 | 12.9 | 18.4 | ||||||||||||
Provision for income taxes |
| (3.2 | ) | | (5.3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
0.1 | % | 18.9 | % | 12.9 | % | 13.1 | % | ||||||||
|
|
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|
|
|
|
78
Comparison of Years Ended December 31, 2019 and 2020
Net Revenues
Years Ended December 31, | ||||||||||||
2019 | 2020 | % Change | ||||||||||
(in thousands) | ||||||||||||
Net revenues |
$ | 110,494 | $ | 263,112 | 138.1 | % |
Net revenues increased by $152.6 million, or 138.1%, for 2020 compared to 2019. The increase in net revenue was primarily driven by new customer acquisition coupled with strong retention of existing customers. During 2020, we observed increased customer traffic on our digital platform and improved conversion rates resulting in increased orders, partially offset by a slight decrease in average order value from $95 in 2019 to $94 in 2020 as a result of the launch of lower priced items, such as masks.
Cost of Goods Sold, Gross Profit and Gross Margin
Years Ended December 31, | ||||||||||||
2019 | 2020 | % Change | ||||||||||
(in thousands) | ||||||||||||
Cost of goods sold |
$ | 31,158 | $ | 72,888 | 133.9 | % | ||||||
Gross profit |
79,336 | 190,224 | 139.8 | |||||||||
Gross margin |
71.8 | % | 72.3 | % | 0.5 | % |
Cost of goods sold increased by $41.7 million, or 133.9%, in 2020 compared to 2019. This increase was primarily driven by an increase in total number of orders in 2020 as compared to 2019.
Gross profit, calculated as net revenues less cost of goods sold, increased by $110.9 million, or 139.8%, in 2020 compared to 2019, primarily due to the significant increase in total number of orders in 2020 as compared to 2019.
Gross margin, expressed as a percentage and calculated as gross profit divided by net revenue, increased by 50 basis points in 2020 compared to 2019. The increase in gross margin was primarily the result of lower product costs and lower discounts. These gross margin improvements were partially offset by an increase in freight-in due to the utilization of more expensive air freight to meet increased customer demand. Air freight is more expensive on a per unit basis compared to our primary method of freight-in via ocean shipping.
Operating Expenses
Years Ended December 31, | ||||||||||||
2019 | 2020 | % Change | ||||||||||
(in thousands) | ||||||||||||
Operating expenses: |
||||||||||||
Selling |
$ | 24,840 | $ | 51,896 | 108.9 | % | ||||||
Marketing |
33,193 | 38,852 | 17.0 | |||||||||
General and administrative |
21,650 | 41,536 | 91.9 | |||||||||
Total operating expenses |
$ | 79,683 | $ | 132,284 | 66.0 | % |
Operating expenses increased by $52.6 million, or 66.0%, in 2020 compared to 2019 and, as a percentage of net revenues, decreased by 21.8%.
Selling expense increased by $27.1 million, or 108.9%, in 2020 compared to 2019 and, as a percentage of net revenues, decreased by 2.8%. The decrease in selling expense as a percentage of net revenues was due primarily to improvements in shipping and fulfillment expenses as revenues increased.
Marketing expense increased by $5.7 million, or 17.0%, in 2020 compared to 2019 and, as a percentage of net revenues, decreased by 15.3%. The decrease in marketing expense as a percentage of net revenues was due primarily to more effective marketing strategies, particularly in our performance marketing expenses.
79
General and administrative expense increased by $19.9 million, or 91.9%, in 2020 compared to 2019 and, as a percentage of net revenues, decreased by 3.8%. The decrease in general and administrative expense as a percentage of net revenues was primarily due to revenue growing at a faster rate than our personnel expenses, including wages and benefits, as well as a decrease in other costs as a percentage of net revenues, including legal fees, professional fees and other corporate expenses.
Other Income, Net
Years Ended December 31, | ||||||||||||
2019 | 2020 | % Change | ||||||||||
(in thousands) | ||||||||||||
Other income, net |
$ | 459 | $ | 136 | (70.4 | )% |
Other income, net decreased by $0.3 million, or 70.4%, in 2020 compared to 2019, primarily due to a decrease in interest income driven by a decrease in interest rates, partially offset by an increase in our average cash balance.
Provision for Income Taxes
Years Ended December 31, | ||||||||||||
2019 | 2020 | % Change | ||||||||||
(in thousands) | ||||||||||||
Provision for income taxes |
| $ | 8,318 | |
Provision for income taxes increased by $8.3 million in 2020 compared to 2019 due to an increase in net income before income tax provision.
Comparison of Three Months Ended March 31, 2020 and 2021
Net Revenues
Three Months Ended
March 31, |
||||||||||||
2020 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Net revenues |
$ | 31,967 | $ | 87,079 | 172.4 | % |
Net revenues increased by $55.1 million, or 172.4%, for the three months ended March 31, 2021, compared to the same period last year. The increase in net revenue was primarily driven by new customer acquisition coupled with strong retention of existing customers, which drove increased sales of our products. During 2020, we observed increased customer traffic on our digital platform, which continued in the first quarter of 2021. We also continued to see improved conversion rates resulting in increased orders and experienced an increase in average order value from $92 to $100 for the three months ended March 31, 2020 and 2021, respectively.
Cost of Goods Sold, Gross Profit and Gross Margin
Three Months Ended
March 31, |
||||||||||||
2020 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Cost of goods sold |
$ | 7,655 | $ | 24,719 | 222.9 | % | ||||||
Gross profit |
24,312 | 62,360 | 156.5 | % | ||||||||
Gross margin |
76.1 | % | 71.6 | % | (4.5 | )% |
Cost of goods sold increased by $17.1 million, or 222.9%, for the three months ended March 31, 2021, compared to the same period last year. This increase was primarily driven by a significant increase in the total number of orders in the first quarter of 2021 as compared to the same period in 2020.
80
Gross profit increased by $38.0 million, or 156.5%, for the three months ended March 31, 2021, compared to the same period last year, primarily due to the significant increase in the total number of orders.
Gross margin decreased by 4.5 percentage points for the three months ended March 31, 2021, compared to the same period last year. The decrease in gross margin was primarily related to an increase in freight-in due to the utilization of more expensive air freight to meet increased customer demand.
Operating Expenses
Three Months Ended
March 31, |
||||||||||||
2020 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Selling |
$ | 6,739 | $ | 17,114 | 154.0 | % | ||||||
Marketing |
7,337 | 10,840 | 47.7 | |||||||||
General and administrative |
6,200 | 18,346 | 195.9 | |||||||||
Total operating expenses |
$ | 20,276 | $ | 46,300 | 128.3 | % |
Operating expenses increased by $26.0 million, or 128.3%, for the three months ended March 31, 2021, compared to the same period last year and, as a percentage of net revenues, decreased by 10.2%.
Selling expense increased by $10.4 million, or 154.0%, for the three months ended March 31, 2021, compared to the same period last year and, as a percentage of net revenues, decreased by 1.4%. The decrease in selling expense as a percentage of net revenues was primarily due to scaling in shipping and fulfillment activities due to our higher order volumes.
Marketing expense increased by $3.5 million, or 47.7%, for the three months ended March 31, 2021, compared to the same period last year and, as a percentage of net revenues, decreased by 10.6%. The decrease in marketing expense as a percentage of net revenues was primarily due to more effective marketing strategies, particularly increased efficiency of our performance marketing expenses.
General and administrative expense increased by $12.1 million, or 195.9%, for the three months ended March 31, 2021, compared to the same period last year and, as a percentage of net revenues, increased by 1.7%. The increase in general and administrative expense as a percentage of net revenues was due to an increase in stock compensation expense, partially offset by revenue growing at a faster rate than our personnel expenses, including wages and benefits.
Other Income (Loss), Net
Three Months Ended
March 31, |
||||||||||||
2020 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Other income (loss), net |
$ | 98 | $ | (38 | ) | (138.8 | )% |
Other income (loss), net decreased by $0.1 million, or 138.8%, for the three months ended March 31, 2021, compared to the same period last year, primarily due to an increase in interest expense from our revolving credit facility commitment fee, as well as a decrease in interest income driven by a decrease in interest rates, partially offset by an increase in our average cash balance.
Provision for Income Taxes
Three Months Ended
March 31, |
||||||||||||
2020 | 2021 | % Change | ||||||||||
(in thousands) | ||||||||||||
Provision for income taxes |
| $ | 4,582 | |
81
Provision for income taxes increased by $4.6 million for the three months ended March 31, 2021, compared to the same period last year, as our effective tax rate for the three months ended March 31, 2020 was 0% due to a full valuation allowance.
Quarterly Results of Operations and Key Metrics
Quarterly Results of Operations
The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the quarters indicated. The information for each of these quarters has been prepared on a basis consistent with our audited annual consolidated financial statements appearing elsewhere in this prospectus and, in our opinion, include all normal recurring adjustments necessary for the fair statement of the financial information contained in those statements. The following unaudited consolidated quarterly financial data should be read in conjunction with our annual consolidated financial statements and the related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our operating results for a full year or any future period.
Three Months Ended | ||||||||||||||||||||
March 31,
2020 |
June 30,
2020 |
September 30,
2020 |
December 30,
2020 |
March 31,
2021 |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net revenues |
$ | 31,967 | $ | 64,143 | $ | 76,809 | $ | 90,193 | $ | 87,079 | ||||||||||
Cost of goods sold |
7,655 | 18,923 | 20,176 | 26,134 | 24,719 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
24,312 | 45,220 | 56,633 | 64,059 | 62,360 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling |
6,739 | 12,905 | 13,998 | 18,254 | 17,114 | |||||||||||||||
Marketing |
7,337 | 8,805 | 9,655 | 13,055 | 10,840 | |||||||||||||||
General and administrative |
6,200 | 6,950 | 8,407 | 19,979 | 18,346 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
20,276 | 28,660 | 32,060 | 51,288 | 46,300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from operations |
4,036 | 16,560 | 24,573 | 12,771 | 16,060 | |||||||||||||||
Other income (loss), net |
98 | 18 | 12 | 8 | (38 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income tax provision |
4,134 | 16,578 | 24,585 | 12,779 | 16,022 | |||||||||||||||
Provision for income taxes |
| 2,403 | 5,262 | 653 | 4,582 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
$ | 4,134 | $ | 14,175 | $ | 19,323 | $ | 12,126 | $ | 11,440 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended | ||||||||||||||||||||
March 31,
2020 |
June 30,
2020 |
September 30,
2020 |
December 31,
2020 |
March 31,
2021 |
||||||||||||||||
Net revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Cost of goods sold |
23.9 | 29.5 | 26.3 | 29.0 | 28.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
76.1 | 70.5 | 73.7 | 71.0 | 71.6 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling |
21.1 | 20.1 | 18.2 | 20.2 | 19.7 | |||||||||||||||
Marketing |
23.0 | 13.7 | 12.6 | 14.5 | 12.4 | |||||||||||||||
General and administrative |
19.4 | 10.8 | 10.9 | 22.2 | 21.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
63.4 | 44.7 | 41.7 | 56.9 | 53.2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income from operations |
12.6 | 25.8 | 32.0 | 14.2 | 18.4 | |||||||||||||||
Other income (loss), net |
0.3 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income before income tax provision |
12.9 | 25.8 | 32.0 | 14.2 | 18.4 | |||||||||||||||
Provision for income taxes |
| 3.7 | 6.9 | 0.7 | 5.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
12.9 | % | 22.1 | % | 25.2 | % | 13.4 | % | 13.1 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
82
Quarterly Trends
Quarterly Net Revenues Trends
Quarterly net revenues generally increased quarter-over-quarter during 2020 primarily due to new customer acquisition coupled with strong retention of existing customers, which drove increased sales of our products. We drove sequential quarter-over-quarter orders growth in 2020 through continued improvements in conversion and increased brand awareness. We experienced some seasonality with higher levels of net revenues in the fourth quarter of the fiscal year driven by seasonal holiday demand.
Quarterly Cost of Goods Sold and Gross Profit Trends
Quarterly cost of goods sold generally increased quarter-over-quarter during 2020 primarily due to an increase in total orders and associated product costs, inbound freight and duties.
Quarterly gross profit generally increased quarter-over-quarter during 2020 primarily due to the increase in total number of orders.
We experienced quarterly fluctuations in gross margin percentage as a result of our promotional calendar, timing of product launches and mix of ocean and air freight.
Quarterly Operating Expenses Trends
Selling expenses have generally increased quarter-over-quarter in each period presented above primarily due to an increase in shipping and fulfillment costs to support the increase in number of orders. Marketing expenses have generally increased quarter-over-quarter in the each period presented above as we have expanded our base of active customers.
Marketing expense as a percent of sales decreased following the first quarter of 2020 primarily due to more effective marketing strategies, particularly increased efficiency of our performance marketing expenses.
General and administrative expenses have generally increased quarter-over-quarter in each period presented above as a result of headcount expansion and increased investments in software, recruiting, professional fees and other corporate expenses to support our growth.
In the first quarter of 2021, we experienced a sequential decrease in operating expenses. Selling expenses declined as a result of a lower total number of orders due to typically higher volume in the last quarter of the year coupled with improvements as a percentage of net revenues due to fulfillment and packaging efficiencies. Marketing expenses declined due to more effective performance marketing strategies in the first quarter and lighter spend following a strong holiday campaign in the fourth quarter of 2020. General and administrative expenses decreased as a result of lower stock compensation expense in the first quarter of 2021 offset by increases in personnel expense and investments in other corporate expenses.
83
Quarterly Adjusted EBITDA and Adjusted EBITDA Margin
The following table reflects a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure prepared in accordance with U.S. GAAP:
Three Months Ended | ||||||||||||||||||||
March 31,
2020 |
June 30,
2020 |
September 30,
2020 |
December 31,
2020 |
March 31,
2021 |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net income |
$ | 4,134 | $ | 14,175 | $ | 19,323 | $ | 12,126 | $ | 11,440 | ||||||||||
Add (deduct): |
||||||||||||||||||||
Other income (loss), net |
(98 | ) | (18 | ) | (12 | ) | (8 | ) | 38 | |||||||||||
Gain on disposal |
| | | 2 | | |||||||||||||||
Provision for income taxes |
| 2,403 | 5,262 | 653 | 4,582 | |||||||||||||||
Depreciation and amortization expense |
218 | 181 | 256 | 291 | 313 | |||||||||||||||
Stock-based compensation expense |
50 | 237 | 693 | 7,733 | 5,015 | |||||||||||||||
Transaction costs |
| | | 296 | 525 | |||||||||||||||
Expenses related to non-ordinary course dispustes |
300 | 365 | 206 | 326 | 2,436 | |||||||||||||||
Adjusted EBITDA |
$ | 4,604 | $ | 17,343 | $ | 25,728 | $ | 21,419 | $ | 24,349 | ||||||||||
Adjusted EBITDA Margin |
14.4 | % | 27.0 | % | 33.5 | % | 23.7 | % | 28.0 | % |
We have demonstrated continued strong quarterly performance in Adjusted EBITDA and Adjusted EBITDA margin. Beginning in the second quarter of 2020, we saw an increase in our Adjusted EBITDA margin, primarily as a result of decreases in operating expenses as a percentage of net revenues. We experienced some seasonal fluctuation in the fourth quarter of 2020 with larger marketing investments to support our holiday campaign.
Quarterly Free Cash Flow
The following table presents a reconciliation of free cash flow to net cash (used in) provided by operating activities, the most directly comparable financial measure prepared in accordance with U.S. GAAP:
Three Months Ended | ||||||||||||||||||||
March 31,
2020 |
June 30,
2020 |
September 30,
2020 |
December 31,
2020 |
March 31,
2021 |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (821 | ) | $ | 25,130 | $ | (1,233 | ) | $ | (1,328 | ) | $ | 16,109 | |||||||
Less: capital expenditures |
(972 | ) | (109 | ) | (546 | ) | (635 | ) | (528 | ) | ||||||||||
Free cash flow |
$ | (1,793 | ) | $ | 25,021 | $ | (1,779 | ) | $ | (1,963 | ) | $ | 15,581 |
Our free cash flow has fluctuated over time primarily as a result of timing of inventory purchases to support our growth. Minimal capital expenditure requirements have been consistent on a quarterly basis and have resulted in strong annual free cash flow generation.
Seasonality
Unlike the traditional apparel industry, the healthcare apparel industry is generally not seasonal in nature. However, due to our continued strong sequential growth as well as our decision to conduct select promotions during the holiday season we historically have generated a higher proportion of net revenues, and incurred higher selling and marketing expenses, during the fourth quarter of the year compared to other quarters, and we expect these trends to continue.
84
Liquidity and Capital Resources
As of December 31, 2020 and March 31, 2021, we had $58.1 million and $73.8 million of cash and cash equivalents, respectively. Since inception, we have financed operations primarily through cash flow from operating activities, the sale of our capital stock and borrowings under credit facilities.
In December 2020, we entered into a credit agreement with J.P. Morgan Chase Bank, N.A., providing for a revolving credit facility in an initial amount of up to $50.0 million, or the Existing Credit Facility. The Existing Credit Facility will mature in December 2025. As of March 31, 2021, we had no borrowings under the Existing Credit Facility. See Note 8 to our financial statements as of and for the years ended December 31, 2019 and 2020 and Note 7 to our financial statements as of and for the three months ended March 31, 2020 and 2021, included elsewhere in this prospectus, for more information regarding the Existing Credit Facility.
We believe that existing cash and cash equivalents and positive cash flows from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of international expansion efforts and other growth initiatives, the expansion of our marketing activities and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital when needed or on terms acceptable to us. The inability to raise capital if needed would adversely affect our ability to achieve our business objectives.
Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
Years Ended
December 31, |
Three Months Ended
March 31, |
|||||||||||||||
2019 | 2020 | 2020 | 2021 | |||||||||||||
(in thousands) |
||||||||||||||||
Cash (used in) provided by operating activities |
$ | 6,531 | $ | 21,748 | $ | (821 | ) | $ | 16,109 | |||||||
Cash used in investing activities |
(4,761 | ) | (2,262 | ) | (972 | ) | (528 | ) | ||||||||
Cash provided by financing activities |
14,000 | 294 | | 123 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
$ | 15,770 | $ | 19,780 | $ | (1,793 | ) | $ | 15,704 | |||||||
|
|
|
|
|
|
|
|
Operating Activities
Cash (used in) provided by operating activities consist primarily of net income adjusted for certain items including depreciation and amortization, stock-based compensation expense and the effect of changes in operating assets and liabilities.
Net cash provided by operating activities increased $16.9 million for the three months ended March 31, 2021, compared to the same period last year, primarily as a result of an increase in net income of $7.3 million driven by improved financial performance. Our improved financial performance, including net income, was driven primarily by increased brand awareness and increased visits to our digital platform, which resulted in more orders during the three months ended March 31, 2021, compared to the same period last year.
85
In addition to improved financial performance, net cash provided by operating activities for the three months ended March 31, 2021 included an increase in non-cash adjustments of $5.5 million primarily due to $5.0 million in higher stock-based compensation expense from equity awards granted in 2020 and 2021.
We also saw a benefit from a decrease in cash consumed as a result of a net change in operating assets and liabilities of $4.1 million. The decrease in cash consumed was primarily due to higher payable and expense accruals of $14.3 million from the timing of accruals and a cash benefit of $3.4 million due to lower prepaid expenses from the timing of payments. The decreases in cash consumed were partially offset by higher inventory purchases of $14.0 million to support our growth.
Net cash provided by operating activities increased $15.2 million in 2020 compared to 2019, primarily as a result of an increase in net income of $49.6 million driven by improved financial performance. Our improved financial performance, including net income was driven primarily by increased brand awareness and increased visits to our digital platform which resulted in more orders in 2020 compared to 2019. We also believe that our increased efficiency in attracting new customers contributed to this improved financial performance in 2020.
In addition to improved financial performance, net cash provided by operating activities in 2020 included an increase in non-cash adjustments of $2.0 million. The increase in non-cash adjustments consisted of $8.5 million in higher stock-based compensation expense from equity awards granted in 2020, partially offset by a $6.5 million increase in deferred income tax benefit.
The increase in net cash provided by operating activities in 2020 was partially offset by an increase in cash consumed by net change in operating assets and liabilities of $36.8 million, primarily due to an increase in inventory purchases to support our growth.
Investing Activities
Cash used in investing activities relate to capital expenditures and other investing activities.
Cash used in investing activities decreased by $0.4 million, to $0.5 million for the three months ended March 31, 2021 from $1.0 million compared to the same period last year.
Capital expenditures in the first quarter of 2020 were primarily related to software development and computer equipment.
Capital expenditures in the first quarter of 2021 were primarily related to software development, computer equipment and furniture and fixtures.
Cash used in investing activities decreased by $2.5 million, to $2.3 million in 2020 from $4.8 million in 2019.
Capital expenditures in 2019 were primarily related to our new office build, including $3.0 million for leasehold improvements.
Capital expenditures in 2020 were primarily comprised of $1.7 million of capitalization of software.
Financing Activities
Cash provided by financing activities consist primarily of net proceeds from the sale of our common stock, borrowings, fees associated with our existing line of credit and proceeds from the exercise of stock options.
86
Cash provided by financing activities was $0.1 million for the three months ended March 31, 2021, which was attributable to proceeds from stock option exercises.
In 2020, net cash provided by financing activities was $0.3 million, which was attributable to $0.4 million in proceeds from stock option exercises, partially offset by $0.1 million of fees associated with our existing line of credit.
In 2019, net cash provided by financing activities was $14.0 million, which was attributable to a capital contribution.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2020:
Payments Due by Period | ||||||||||||||||||||
Total |
Less
than 1 Year |
1-3 Years | 3-5 Years |
More than
5 Years |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating lease commitments |
$19,634 | $ 1,941 | $3,986 | $4,259 | $9,448 | |||||||||||||||
Inventory purchase obligations |
33,837 | 33,837 | | | | |||||||||||||||
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|
|
|
|
|
|
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Total |
$53,471 | $35,778 | $3,986 | $4,259 | $9,448 | |||||||||||||||
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The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Our operating lease commitments relate primarily to our office space in Santa Monica, California. Inventory purchase obligations represent open purchase orders for the materials and merchandise at the end of the fiscal year. These purchase orders can be impacted by various factors, including the timing of issuing orders and the timing of shipment of orders. The table does not include obligations under agreements that we can cancel without a significant penalty.
Critical Accounting Policies and Estimates
We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations. See Note 2 to our financial statements as of and for the years ended December 31, 2019 and 2020, and Note 2 to our financial statements as of and for the three months ended March 31, 2020 and 2021, appearing elsewhere in this prospectus for a description of our other significant accounting policies. The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
Revenue Recognition
Our primary source of revenues is from sales of healthcare apparel, footwear and other products primarily through our digital platform.
We determine revenue recognition through the following steps in accordance with Topic 606, which we adopted effective January 1, 2018:
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identification of the contract, or contracts, with a customer; |
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identification of the performance obligations in the contract; |
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determination of the transaction price; |
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allocation of the transaction price to the performance obligations in the contract; and |
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recognition of revenue when, or as, we satisfy a performance obligation. |
Revenue is recognized upon shipment when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our revenue is reported net of sales returns and discounts. We estimate our liability for product returns based on historical return trends and an evaluation of current economic and market conditions. We record the expected customer refund liability as a reduction to revenue, and the expected inventory right of recovery as a reduction of cost of goods sold. If actual return costs differ from previous estimates, the amount of the liability and corresponding revenue are adjusted in the period in which such costs occur.
Stock-Based Compensation
We have granted stock-based awards consisting primarily of stock options and RSUs to employees and consultants. Stock-based compensation expense related to stock-based awards is recognized based on the fair value of the awards granted. We estimate the fair value of each option award granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the fair value of the underlying common stock, the risk-free interest rate, the expected volatility of the price of our common stock, the expected dividend yield of our common stock and the expected term of the option. The assumptions used to determine the fair value of the option awards represent managements best estimates. These estimates involve inherent uncertainties and the application of managements judgment. The related stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally four years. We account for forfeitures as they occur. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. These assumptions and estimates are as follows:
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Fair Value of Common Stock. As our common stock is not publicly traded, the fair value was determined by our board of directors, with input from management and valuation reports prepared by third-party valuation specialists as described below under Common Stock Valuations. |
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Risk-Free Interest Rate. The risk-free interest rate for the expected term of the options was based on the U.S. Treasury yield curve in effect at the time of the grant. |
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Expected Volatility. As we do not have a trading history for our common stock, the expected volatility was estimated by taking the average historic price volatility for industry peers, consisting of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage, over a period equivalent to the expected term of the awards. |
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Expected Dividend Yield. We have never declared or paid any cash dividends and do not currently plan to pay cash dividends in the foreseeable future. As a result, an expected dividend yield of zero percent was used. |
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Expected Term. We estimate the expected term by using the simplified method, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options. |
We estimate the fair value of each RSU granted based on the fair value of our common stock on the date of grant. All of our RSUs vest upon the satisfaction of both a service-based vesting condition and a liquidity-based vesting condition. The service-based vesting condition for the awards is satisfied in substantially equal quarterly installments over the four-year period following December 31, 2019, subject to the individuals continued service to us. The liquidity-based vesting condition is satisfied upon the occurrence of a qualifying liquidity event, which includes the effective date of the registration statement of which this prospectus forms a part or the
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consummation of a change of control transaction. As of December 31, 2020 and March 31, 2021, no stock-based compensation expense had been recognized for RSUs because the liquidity-based vesting condition had not been probable of being satisfied. In the period in which our liquidity-based vesting condition becomes probable, we will begin recording stock-based compensation expense for these RSUs with a liquidity-based vesting condition using the accelerated attribution method, net of forfeitures, based on the grant-date fair value of the RSUs, and we will record the remaining unrecognized stock-based compensation expense over the remainder of the requisite service period.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimation process, which could materially impact our future stock-based compensation expense.
Common Stock Valuations
Prior to our initial public offering, given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of fair value of our common stock at each grant date, including:
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contemporaneous independent third-party valuations of our common stock; |
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the prices at which our common stock was sold in secondary transactions; |
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our results of operations, financial position and capital resources; |
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industry outlook; |
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the lack of marketability of our common stock; |
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the fact that the stock option grants involve illiquid securities in a private company; |
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the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company, given prevailing market conditions; |
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the history and nature of our business, industry trends, and competitive environment; and |
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general economic outlook, including economic growth, inflation and unemployment, interest rate environment and global economic trends. |
In valuing our common stock, the fair value of our business, or enterprise value, was determined using a combination of the market approach and income approach. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business and secondary transactions of our capital stock. From the comparable companies, a representative market value multiple is determined and then applied to the subject companys financial results to estimate the value of the subject company. The market approach also includes consideration of the transaction price of secondary sales of our capital stock. The income approach estimates value based on the expectation of future cash flows, which are then discounted to present value.
For each valuation, the enterprise value was then allocated to the common stock using a combination of methods, including the Option Pricing Model, or OPM, and the consideration of private secondary transactions. The OPM allocates a companys equity value among various capital investors, taking into account any liquidation preferences, participation rights, dividend policy and conversion rights. The use of OPM is appropriate when the range of possible future outcomes is difficult to predict and can result in a highly speculative forecast. When evaluating private secondary transactions, we considered the relative size of such transaction to our fully diluted capitalization, as well as the facts and circumstances of each transaction to determine the extent to which they represented a fair value exchange. Factors considered include transaction volume, timing, whether the transactions occurred among willing and unrelated parties and whether the transactions involved investors with access to our financial information.
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Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenues, expenses, cash flows, discount rates and market multiples, the selection of comparable companies and the probability of possible future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
Following this offering, it will not be necessary to estimate the fair value of our common stock, as the shares will be traded in the public market, and the fair value of our common stock will be based on the closing price as reported by NYSE.
Inventory
Inventories are stated at the lower of cost and net realizable value. Cost is determined using an average cost method. Cost of inventory includes import duties and other taxes and transport and handling costs. We write down inventory where it appears that the carrying cost of the inventory may not be recovered through subsequent sale of the inventory. We analyze the quantity of inventory on hand, the quantity sold in the past year, the anticipated sales volume, the expected sales price and the cost of making the sale when evaluating the value of our inventory. If the sales volume or sales price of specific products declines, additional write-downs may be required.
Income Taxes
We are subject to income taxes in the United States. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and the charge is recorded to earnings.
Significant judgment is required in determining our uncertain tax positions. We continuously review issues raised in connection with all ongoing examinations and open tax years to evaluate the adequacy of our tax liabilities. We evaluate uncertain tax positions under a two-step approach. The first step is to evaluate the uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon examination based on its technical merits. The second step is, for those positions that meet the recognition criteria, to measure the largest amount of benefit that is more likely than not of being realized. We believe our recorded tax liabilities are adequate to cover all open tax years based on our assessment. This assessment relies on estimates and assumptions and involves significant judgments about future events. To the extent that our view as to the outcome of these matters changes, we will adjust income tax expense in the period in which such determination is made. We classify interest and penalties related to income taxes as income tax expense.
Loss Contingencies
We may be involved in legal proceedings, claims and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. We accrue for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. We do not accrue for contingent losses that, in our judgment, are considered to be reasonably possible, but not probable; however, we disclose the range of such reasonably possible losses. Loss contingencies considered remote are generally not disclosed.
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Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Qualitative and Quantitative Disclosures about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates.
Interest Rate Risk
At March 31, 2021, we had cash and cash equivalents of $73.8 million. Interest-earning instruments carry a degree of interest rate risk. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. A hypothetical 10% change in interest rates would not result in a material impact on our financial statements.
Foreign Currency Risk
Our net revenues are primarily denominated in U.S. dollars and are not currently subject to significant foreign currency risk. Some foreign operating expenses are denominated in the currencies of the countries and territories in which our third-party vendors are located and may be subject to fluctuations due to changes in foreign currency exchange rates. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our results of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
Recently Adopted Accounting Pronouncements
See Note 2 to our financial statements included elsewhere in this prospectus for a description of recently adopted accounting pronouncements.
Emerging Growth Company Status
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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Heather Hasson, Co-CEO & Co-Founder The healthcare industry is made up of the most incredible people in the world. Registered nurses, respiratory therapists, surgeons, dental hygienists, veterinarians, home health aids, physician assistants, nurse practitioners, researchers, medical students, the list goes on. From the outset, FIGS mission has been to celebrate, empower and serve each of these people who are dedicating their own lives to serving others. We call our community: Awesome Humans. A CUP OF COFFEE The journey of FIGS began over a cup of coffee almost a decade ago. I (Heather) was meeting my good friend, Allison, a nurse practitioner, who was coming off a 16-hour shift draped in what essentially was a poorly fitting burlap sack with her size displayed in bright orange for all to see. This was the official garment for medical professionals, aka scrubs. As I was staring at Allisons baggy, boxy, ill-fitting scrubs, I could not help but think about how many multi-billion-dollar apparel companies were focused at that very minute on giving athletes every possible advantage through cutting-edge materials and purpose-driven designs. I thought to myself: What about the people saving lives? Who is focused on them? Trina Spear, Co-CEO & Co-Founder A BROKEN INDUSTRY I went to a scrubs store to learn more. I quickly realized that not only were the product offerings depressing, the experience was even worse. The store was lled with racks and racks of indistinguishable scrubs, there were boxes strewn about that had crude markings to designate sizing, and right next to the scrubs were bed pans and knee braces. Worse yet, the store closed at 5pm, which made it beyond difficult for healthcare professionals, many of whom work 12-hour shifts, to even get there before closing. Leaving that store, I could not believe that medical professionals who are literally saving peoples lives had to shop like this to buy their uniforms. Right then, it was clear to me that both the design and distribution of scrubs were antiquated and ripe for disruption, and that healthcare professionals deserved innovative, functional products and an efficient distribution model built around their particular needs. YIN AND YANG After I re-designed what scrubs could be and with a clear vision for FIGS both in terms of the business opportunity and the broader impact we could make, Trina and I teamed up together in 2013. Every morning at 7am and every evening at 7pm, we parked outside of emergency rooms, waiting for healthcare professionals to change shifts. We handed them a fresh cup of coffee and sold them FIGS from the back of a car. We snuck into hospital lobbies and cafeterias for almost a year to observe how healthcare workers moved; we spent countless hours speaking with them about their unique challenges, likes, and dislikes. A UNIFORM Your uniform tells the world who you are and what you do. It is a symbol of safety, identity and unity. It should help you look good, feel good and perform at your best. And if it can elevate your performance even in small or unexpected ways imagine the profound
impact it can have. For a healthcare professional, well-designed pockets dont just hold your keys or money to run around a track; they hold the tools that may save someones life. It is with that level of intention that we design our products. Design should solve a problem. And every design at FIGS is meant to solve real problems that medical professionals face every day. BUILDING DIRECT CONNECTIONS For healthcare apparel, the distribution model is almost as important as the products themselves. While most people have come to prefer the ease of shopping online for clothes, groceries, and a range of other products online, this is a nice to have. For healthcare professionals who are regularly working 12-hour shifts and caring for their families when they are not working, the ability to shop online is not a nice to have, it is a necessity. That is why since Day 1, we have always used a seamless direct-to-consumer online platform. Our approach to DTC is to break down barriers. Building direct connections online makes the experience as easy as possible for healthcare professionals, and we are committed to doing whatever we can to make their lives easier. We serve healthcare professionals from all walks of life and across all disciplines and levels of experience, who are working hard to serve others while making a living for themselves and their families. We feel a profound responsibility to empower and celebrate the people doing this important work. THE PAST Our experiences have ranged from humbling failures to hard-fought successes. Ultimately, through the tireless efforts of the entire FIGS team, we created three things above all else: (1) innovative products that allow healthcare professionals to look, feel and perform at their best, (2) the worlds first direct-to-consumer online platform specifically designed for medical professionals, and (3) a community where Awesome Humans are celebrated, their stories are told, and the gaps that previously existed in the healthcare industry are bridged. Our business model is simple. At FIGS, we design and make our own products and sell them directly through our own digital platforms. We do it that way because we know the best businesses are simple, easily understood and start with a problem that needs to be solved. THE FUTURE There is so much work left to do. We want FIGS to help inspire the next generations of healthcare professionals to become healthcare professionals. We want a world where athletes and celebrities arent the only ones on billboards in Times Square. We want those billboards to show Ana Wilkinson, RN, Lexie Robillard, PICU Transport Nurse and Dr. Elvis Francois, so that the next generation can look up and aspire to be like them. Although the COVID-19 pandemic has brought increased attention to the importance of healthcare professionals, we have been standing alongside them for almost a decade and we will still be here as the world stops clapping at 7pm. We will continue to cheer around the clock so healthcare professionals know they are seen, heard and understood. We get them. We got them. At FIGS, we believe in something bigger than ourselves. We believe we can impact this world and inspire the future of healthcare. We believe we can and will transform the healthcare experience. Heather and Trina
Our Mission
Our mission is to celebrate, empower and serve those who serve others.
Who We Are
We are a founder-led, direct-to-consumer healthcare apparel and lifestyle brand that seeks to celebrate, empower and serve current and future generations of healthcare professionals. We are committed to helping this growing, global community of professionals, whom we refer to as Awesome Humans, look, feel and perform at their best24/7, 365 days a year. We create technically advanced apparel and products that feature an unmatched combination of comfort, durability, function and style, all at an affordable price. In doing so, we have redefined what scrubs aregiving rise to our tag-line: why wear scrubs, when you can #wearFIGS?
We have revolutionized the large and fragmented healthcare apparel market. We branded a previously unbranded industry and de-commoditized a previously commoditized productelevating scrubs and creating premium products for healthcare professionals. Most importantly, we built a community and lifestyle around a profession. As a result, we have become the industrys category-defining healthcare apparel and lifestyle brand.
We market and sell 98% of our products through our digital platform, consisting of our website and mobile app, to a rapidly growing community of loyal customers. From 2017 to 2020, we grew net revenues from $17.6 million to $263.1 million, representing a compound annual growth rate, or CAGR, of 146%. In addition, in 2020, we delivered operating income and Adjusted EBITDA of $57.9 million and $69.1 million, respectively.
We Are Obsessed with Our Community of Awesome Humans.
We are dedicated to empowering and celebrating every healthcare professional across all disciplines and levels of experience. The healthcare community informs and inspires us, and we place these Awesome Humans at the center of everything we do. We purposefully design products to serve their particular needs and we sell those products through a convenient direct-to-consumer, or DTC, model tailored to their around-the-clock lifestyle. We use our digital platform to celebrate Awesome Humans in aspirational, creative and unexpected ways. We leverage social media platforms, such as Instagram, to listen to, engage with, understand and better serve our community of healthcare professionals at scale. Our Ambassador Program gives healthcare professionals a platform where they can tell their stories. This program, which consists of over 250 Awesome Humans from around the world who represent a diverse cross-section of the healthcare industry, helps us interact with and drive engagement with our community. Our Ambassadors are an extension of our team and are evangelists for our brand. Our differentiated approach to creating authentic and meaningful relationships with our community has allowed us to build a growing base of approximately 1.5 million active customers who are passionate and loyal to our brand, as demonstrated by our strong customer retention and engagement.
Innovation Drives Our Product Development.
We create technically advanced apparel and products for the modern healthcare professional. Our design philosophy is rooted in Technical Comfortthe conviction that design, comfort and function are non-negotiable. While multi-billion-dollar companies were focused on athletes, we believed that nobody was sufficiently focused on healthcare professionalsextraordinary people who care for patients, cure diseases and save lives, and who deserve to look, feel and perform at their best. As a result, we developed cutting-edge fabric technology and product designs to specifically address their needs. Our proprietary fabric technology, called FIONx, offers four-way stretch, anti-odor, anti-wrinkle and moisture-wicking properties. Our scrubs feature easy-to-access zippered pockets for professional and personal items such as stethoscopes, scissors, smartphones
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and ID badges. Our lifestyle apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks and face shields, are specifically designed for the needs and preferences of the medical community. By enabling all healthcare professionals to have access to these products, we make the healthcare community more inclusive and aim to elevate the entire healthcare ecosystem.
We Are a Digitally Native Direct-to-Consumer Brand.
We are a digitally native DTC brand that utilizes technology to deliver a differentiated customer experience. We disrupted the industrys historical distribution model, which required healthcare professionals to physically travel to brick-and-mortar stores to purchase their uniforms. We have built the largest DTC platform in healthcare apparel, leading the industry in the shift to digital. By selling directly through our digital platform, we control all aspects of the customer experience. Further, we are able to engage with our community of healthcare professionals before, during and after purchase, through our digital platform, email, social media, podcasts, in-person events and numerous other channels. This direct engagement enables us to establish personal relationships at scale and provides us with valuable customer data and feedback that we leverage across our organization to better serve our community.
We Leverage Data Science to Connect with and Serve Our Community.
We leverage our rich customer data set, bolstered by the inherent benefits of our DTC model, to serve our community more effectively and efficiently. We develop proprietary and customized data solutions designed to optimize our product innovation, inventory analytics, marketing efforts and operational efficiency. We maintain centralized Data Science and Data Engineering teams and de-centralized Data Analysts working directly within each key functional area of the company. This approach enables us to gather and manage extensive data, and rapidly and directly apply that data to deliver customer insights and improve our core operating activities and decision-making processes. Our vast and growing data set plays a critical role in driving new customer acquisition as well as in our community engagement and retention strategy.
We Give Back to the Community We Serve.
In line with our purpose-driven mission, giving back is ingrained in everything we do at FIGS and has been from the beginning. When we started FIGS, we created an initiative called Threads for Threads to donate scrubs to healthcare professionals who work in resource-poor countries and lack the proper uniforms to do their jobs safely. By providing clean scrubs to these individuals, we aim to empower them and improve the quality of care they provide. Our efforts have been supported by over 60 organizations who understand the needs of local healthcare professionals and work with us to ensure that we provide what is needed. To date, we have donated hundreds of thousands of FIGS scrubs and other products to medical professionals in need.
In an effort to empower and support our healthcare community, we have also given in a variety of other ways, including by:
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Working with our community of Ambassadors to provide time, expertise and care to local healthcare institutions, providers and patients through medical giving trips; |
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Granting funds through our New Icons initiative to help pay the tuition of selected Awesome Humans who represent the next generation of healthcare; |
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Promoting diversity and inclusion in the healthcare profession by donating to, and raising awareness for, organizations with our shared values, such as the National Black Nurses Association and Student National Medical Association; |
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Creating a special capsule collection, through which we donated funds to Wild Aid for each product sold within the collection, to help fight poaching and climate change and to protect endangered species; and |
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Donating funds and supplies to support rehabilitation efforts following the 2020 wildfires in Australia. |
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In response to the COVID-19 pandemic, in 2020, we focused our giving efforts locally in the United States, donating personal protective equipment, scrubs, funds and other essential products to frontline workers affected by the pandemic.
Through all of these efforts, our approach is simple: we give back to the healthcare community that gives so much of itself to serving others.
Our Recent Financial Performance
We have demonstrated rapid growth, strong profitability and positive cash flow generation. In 2020, we achieved the following results compared to 2019:
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Expanded our community of active customers by 118% from 0.6 million to approximately 1.3 million; |
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Increased net revenues from $110.5 million to $263.1 million, representing 138% year-over-year growth; |
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Increased gross margin by 50 basis points from 71.8% to 72.3%; |
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Improved net operating (loss) income from $(0.3) million to $57.9 million; |
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Increased Adjusted EBITDA from $1.7 million to $69.1 million, representing an Adjusted EBITDA margin of 26.3% in 2020; |
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Increased cash flow from operations from $6.5 million to $21.7 million; and |
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Increased free cash flow from $1.8 million to $19.5 million. |
Active Customers (in millions) |
Net Revenues ($ in millions) |
Net Operating (Loss) Income ($ in millions) |
Adjusted EBITDA ($ in millions) |
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*NM = Not Meaningful
We define an active customer as a unique customer account that has made at least one purchase in the preceding 12-month period. See the section titled Selected Financial DataNon-GAAP Financial Measures for information regarding Adjusted EBITDA, Adjusted EBITDA margin and free cash flow, including a reconciliation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.
Our Market Opportunity
Healthcare Apparel Is a Large, Growing and Non-Discretionary Industry.
According to the Bureau of Labor Statistics, the healthcare sector is the largest and fastest growing job segment in the United States, employing over 20 million professionals in 2020. Total U.S. employment between 2019 and 2029 is expected to grow by 15% for all healthcare professionals versus just 4% for all occupations. Within this growing market, healthcare apparel is a large, fundamentally attractive industry underpinned by its
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scale, recurring nature and compelling growth outlook. In 2020, the total addressable market of the healthcare apparel industry was an estimated $12.0 billion in the United States and $79.0 billion globally, according to an April 2021 Frost & Sullivan study that we commissioned. Unlike most other categories in the apparel sector, the healthcare apparel industry is largely non-discretionary, recession resistant and much less susceptible to fashion or fad risk. Hospitals, medical offices, clinics and laboratories routinely require healthcare professionals such as doctors, nurses and medical technicians to wear scrubs, lab coats and other medical apparel during every shift. Over time, healthcare apparel purchasing has shifted from institutions to the individual, with approximately 85% of all medical professionals now purchasing their own uniforms. Due to frequent wear, healthcare apparel continuously needs to be replenished, resulting in highly predictable, recurring demand for such products.
The Industry Has Historically Lacked Innovation.
Prior to FIGS, the healthcare apparel industry had operated for over 100 years with little change or innovation. Despite attractive market fundamentals, the industry had been held back, and its consumers underserved, by legacy participants with outdated business models.
We believe that key limitations of industry incumbents include:
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Commoditized Products. Legacy manufacturers typically sell commoditized product offerings that are notoriously ill-fitting, uncomfortable, baggy, boxy and lacking in design and functionality, with minimal focus on fabric technology or performance. In addition, any adjacent lifestyle products offered by these manufacturers are extremely limited. |
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Brand Obscurity. Traditional scrubs manufacturers sell under third-party licenses, and therefore do not retain control over the product and have limited ability to promote brand loyalty. |
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Antiquated Distribution. An outdated distribution strategy causes incumbent manufacturers to rely on a highly fragmented network of discount brick-and-mortar medical supply stores, often in inconvenient locations, and unappealing aggregated online sites operated by third-party retailers. |
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Channel Conflict. Due to legacy wholesale relationships, many incumbent manufacturers do not sell DTC despite consumers growing desire to engage directly with brands. |
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Customer Separation. Incumbent manufacturers generally do not have a direct connection with the end customerthe healthcare professional. As a result, they lack valuable feedback regarding customers needs and preferences. |
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Challenged Margins. Structurally challenged margin profiles, stemming from third-party brand licensing and wholesale distribution economics, likely impacts incumbent manufacturers ability to invest in product innovation, marketing and customer experience. |
The Industry is Fundamentally Changing.
We believe the healthcare apparel sector is positioned for continued strong growth driven by the following key industry dynamics:
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Resilient Industry with Favorable Long-Term Trends. The healthcare apparel industry is growing and has demonstrated resilience across economic cycles, driven by the non-discretionary, replenishment nature of its products and the secular growth of the healthcare sector. |
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Increased Demand for Healthcare Professionals. Healthcare is the fastest growing job sector in the United States, having grown by 22% from January 2011 to January 2020. With an expanding aging population, proliferation of chronic illness, greater access to healthcare in the United States provided by the Affordable Care Act and an increasing focus on health and wellness, the demand for healthcare professionals continues to grow. |
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Acceleration of eCommerce. The shift to eCommerce is rapidly accelerating as consumers continue to embrace the convenience of online and mobile shopping. For healthcare professionals who work long shifts and all hours of the day and night, the convenience of eCommerce is even more necessary. |
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Attraction to Purpose-Driven Brands. Consumers are increasingly attracted to, and interested in engaging with, purpose-driven brands using social media channels. Particularly among Millennials and Generation Z, purpose-driven brands are the expectation, not a luxury. |
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Magnified Importance of Technically Advanced Healthcare Apparel. The COVID-19 pandemic has magnified the indispensability of healthcare professionals. During a time when the need for high-performance healthcare apparel has never been greater, we quickly rose to the challenge by ramping up production to meet demand and by donating PPE, scrubs, funds and other essential products to frontline workers. Due to the pandemic, more healthcare professionals are choosing to wear medical apparel, and a greater number of hospitals, medical offices and clinics are requiring staff to wear scrubs and other medical apparel. While we demonstrated consistent and significant growth prior to 2020, we believe the pandemic has accelerated awareness of the FIGS brand and a shift in purchasing decisions that will continue to drive future growth. |
Supported by these key trends, the healthcare apparel industry is expected to demonstrate strong and consistent growth, with the total addressable market in the United States expected to grow by a 6.1% CAGR over the next five years, from approximately $12.0 billion in 2020 to approximately $16.0 billion in 2025, according to the Frost & Sullivan study.
What Sets Us Apart
We believe that the following competitive strengths have been key drivers of our success to date and strategically position us for continued success.
Deeply Passionate, Loyal Community
We have been building a large, growing community of deeply loyal customers who share an authentic emotional connection with FIGS. During 2020, our community more than doubled to approximately 1.3 million active customers, about 60% of whom were repeat customers. Our brand awareness is driven largely by word of mouth among healthcare professionals who are passionate about FIGS, and whose passion quickly spreads through hospitals and healthcare institutions, where thousands of healthcare professionals often work in close proximity to one another. In addition, through our digital platform and social media presence, we provide venues for our community to engage with each other on common ground. We are proud that our products and digital platform are connecting healthcare professionals and bridging gaps that previously existed across varying disciplines and experience levels. Through our digital platform, we showcase the daily wins and challenges healthcare professionals experience and highlight their stories of courage, dedication and selflessness. Our strong customer loyalty is demonstrated by our compelling revenue retention metrics. In 2020, we retained 75% of the 2019 and prior cohorts net revenues, including 100% of the 2019 net revenues generated by 2018 and prior cohorts.
Authentic, Category-Defining Brand
FIGS is the first digitally native lifestyle brand outfitting healthcare professionals. Our brand represents high quality, functional, comfortable and stylish products combined with a seamless digital customer experience that healthcare professionals have never experienced before. Many of our customers form a deep emotional connection with our brand because we are the first brand in the industry to seek relentlessly to understand and fulfill their unique needs. We are purpose-driven with a mission to celebrate, empower and serve those who serve others, and this purpose resonates with our community. We collaborate with other highly regarded brands to further extend our brand reach and enhance our appeal with customers. Through our Ambassador Program, we have formed meaningful relationships with over 250 Awesome Humans who help us reach millions of healthcare
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professionals around the world in an intimate, authentic and personalized way. Our strong brand affinity is demonstrated by our high Net Promoter Score of +81. See the section titled Industry and Market Data for additional information regarding Net Promoter Score.
Industry-Leading Product Innovation
We strive to create the most innovative, functional, comfortable and stylish healthcare apparel in the industry. Our design philosophy stems from an unwavering focus on what healthcare professionals need from their apparel in order to look, feel and perform at their best. Our innovative products are designed, sourced and manufactured from the fiber level. Our proprietary FIONx fabric technology is made from what we believe to be the best combination of materials and is core-spun for maximum durability to withstand the demands of a healthcare professionals work without sacrificing comfort. We design products that offer technical features such as four-way stretch, anti-odor, anti-wrinkle, and moisture-wicking properties. Our approach and products are distinct from those of legacy manufacturers, who offer poorly fitting scrubs and other commoditized healthcare apparel offerings. We attribute our ability to develop superior products to a number of factors, including our talented design, product development and production teams, feedback from healthcare professionals, our data-driven design process, and our obsessive focus on quality. Through those factors, we seek to create products that healthcare professionals never even knew they needed or wanted, and that not only meet but exceed their expectations. We dream about inventing the future so that design is aesthetically pleasing, while also solving real problems for our community. This combination of form and function results in a range of products that deliver maximum comfort, function and style.
Digitally Native Direct-to-Consumer Strategy
Our business is powered by a digitally native DTC strategy, which offers significant competitive advantages. Unlike most incumbent scrubs manufacturers, who sell through legacy distribution channels and do not have direct touchpoints with the end customer, we directly engage with and serve medical professionals through our digital platform. By owning all aspects of the customer experience, including website and app design, marketing content, storytelling and post-purchase customer engagement, we deliver an elevated, personalized and seamless experience. Our DTC strategy also gives us access to valuable real-time customer data that we leverage in all aspects of our business, including apparel design and merchandising, customer acquisition and retention, demand forecasting and inventory optimization. We are able to use data to tailor the digital experience to healthcare professionals based on a number of factors, including whether that individual has purchased from us before, which products they have purchased, what size they wear, which colors they prefer and what type of healthcare professional they are. We capture demographic, geographic and psychographic data that enables us to reliably predict buying patterns, leading to operational efficiencies throughout our supply chain, inventory management and new product development.
Highly Effective Merchandising and Product Launch Model
We have developed a highly effective merchandising strategy, anchored by our recurring, functional offering of 13 core scrubwear styles, which represented approximately 82% of our net revenues in 2020. We offer these core styles in six core colors as well as limited edition colors to generate excitement around the brand and create a sense of purchase urgency. The remaining 18% of net revenues in 2020 was generated by limited edition scrubwear styles as well as our lifestyle apparel and other non-scrub offerings, which include lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks, face shields and other products. For our limited edition colors and styles, we utilize a disciplined buying approach with shallow initial buys and data-driven repurchasing decisions to minimize inventory risk while creating scarcity. We launch limited edition colors or styles approximately weekly, driving recurring traffic to our digital platform where customers often purchase limited edition products along with our core offerings. These launches not only drive interest in the limited edition products themselves, they also drive our core business, as, on average, 90% of sales
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on launch days are core styles. This innovative, lower-risk merchandising strategy drives recurring demand while maintaining inventory efficiency. As an additional benefit, our approach has resulted in a return rate of approximately 10% in 2019 and 2020, which is far lower than the broader online apparel return rates that tend to be in the 30% to 40% range.
Attractive Financial Profile Driving Robust Growth, Profitability and Cash Flow Generation
Our business model supports our attractive financial profile characterized by robust growth, profitability and cash flow generation. We have built an industry-leading business with only approximately $60.0 million of outside equity capital raised between 2013 and 2020, reflecting our focus on scalability and capital efficiency. As a successful DTC brand with a highly effective merchandising model, we benefit from structurally advantaged product margins. Through our DTC strategy, we leverage data in our marketing initiatives to drive efficient customer acquisition and retention, which has contributed to our rapid growth and strong profitability. In 2020, we delivered net revenue growth of 138%, gross margins of 72.3%, operating income margins of 22.0% and Adjusted EBITDA margins of 26.3%. Due to our modest capital expenditure requirements, we enjoy significant cash flow generation.
Mission-Driven, Founder-Led Culture and Execution
Our company culture, strategic vision and operational execution are driven by our visionary co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear. Ms. Hasson and Ms. Spear are successful entrepreneurs who offer highly complementary skillsets that have helped to scale FIGS from selling out of the back of a car to generating net revenues of $263.1 million in 2020. Our Chief Financial Officer, Jeff Lawrence, who previously served as Chief Financial Officer of Dominos Pizza, brings over 25 years of experience from his prior roles driving technology and digital strategies, international expansion and overall financial success.
Our company culture mirrors our founders mission to celebrate, empower and serve those who serve others. We understand that authentically serving humans starts from within, and we are passionate about supporting our community and ensuring that our company reflects the world we want to live in. Through Threads for Threads, we donate medical apparel to healthcare professionals in need around the world. We are committed to operating responsibly and promoting ethical and sustainable business practices through our sourcing and manufacturing. We prioritize building a diverse, inclusive, equitable and supportive team that is driven by creativity and purposeful innovation.
Our Growth Strategies
In 2020, the total addressable market of the U.S. healthcare apparel industry was approximately $12.0 billion, according to the Frost & Sullivan study. We estimate that, notwithstanding our rapid growth to date, our share of the U.S. healthcare apparel industry is currently approximately 2.1%, presenting substantial opportunity for further growth. We believe we are well-positioned to significantly expand our market share and drive sustainable growth and profitability by executing on the following strategies:
Continue to Increase Customer Loyalty
We have the opportunity to create customers for lifecustomers who return to FIGS repeatedly throughout their medical careers. Healthcare apparel continuously needs to be replenished, resulting in highly predictable, recurring demand. As a result, customer loyalty and retention will continue to be a key driver of our growth. We encourage repeat purchases by introducing innovative limited edition styles, products and color drops. We inspire customer loyalty by building authentic relationships with our community and by creating thoughtful brand and performance marketing focused on retention. For example, through our #FIGSLOVE program, we send special gifts, such as embroidered lab coats, to members of our community when they graduate from school, open a new practice or reach other career milestones. We aim to be part of their journey, building deep, lasting relationships along the way.
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For customers that were acquired between 2017 and 2019, approximately 50% returned for a second purchase, demonstrating our high customer retention and engagement. After a second purchase, 63% of those customers in that cohort purchased again. After a third purchase, 70% of those customers in that cohort purchased yet again. For our repeat customers, the average number of days between purchases is 98 days. Customers that we retain also tend to spend more with us over time. Our 2017, 2018 and 2019 customer cohorts increased revenue per customer per cohort from year 0 to year 1 by 54%, 52% and 62%, respectively. Our repeat customers make frequent purchases, buy a variety of products and become evangelists for our brand. By leveraging data analytics and developing new personalization capabilities, we plan to continue to deepen our existing customer relationships to further improve our strong customer retention and engagement.
Grow Brand Awareness and Attract New Customers
As of March 31, 2021, we served a community of approximately 1.5 million active customers, which compares to a broader total addressable market of over 20 million healthcare professionals in the United States. In addition, while men on average represented approximately 25% of the U.S. healthcare workforce in 2019, our mens business represented only 17% of our net revenues in 2020, presenting significant opportunity to expand our customer base.
We have a significant opportunity to grow brand awareness and attract new customers to FIGS through word of mouth, brand marketing and performance marketing. Among U.S. healthcare professionals and medical students, we have aided and unaided brand awareness of 55% and 22%, respectively, according to a survey performed by Frost & Sullivan. See Industry and Market Data for additional information. Hospitals and other healthcare institutions, which often employ thousands of healthcare professionals working in close physical proximity on a daily basis, serve as ideal environments for growing awareness of our brand through word of mouth. Brand marketing and performance marketing also work together to drive millions of visits to our digital platform. We create differentiated brand marketing content to grow and retain our loyal community while highlighting the spirit of the FIGS brand. We leverage authentic relationships with healthcare professionals who serve as Ambassadors by exhibiting outsized engagement with our community through social media. We complement social media efforts with offline brand marketing strategies, such as billboards and commercials, that deliver emotional and inspiring content that drive brand awareness. Our digital-centric performance marketing efforts are designed to drive customers from awareness to consideration to conversion. These efforts include retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. Our highly productive, diversified strategy generates a significant return on new customer acquisition investments resulting from high average order value, strong product margins and attractive repeat purchase behavior.
Broaden Our Lifestyle Offerings
We intend to continue to leverage healthcare professionals trust in our technical function, fit, comfort and style, as well as our rapid product development capabilities to broaden and deepen our product offerings. We have strategically expanded our addressable market over time by creating new innovative products and entering or creating new categories that are complementary to our core offerings. Our category expansion strategy is focused on outfitting the medical professionalon and off shiftto work, at work and from work. Our customers often begin their FIGS journey with our core scrubs and expand their purchases to limited edition scrubs and lifestyle and other products, such as underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks and face shields. As we continue to expand our offerings to fully outfit the medical professional, we believe we have a significant opportunity to continue to expand our share of both the uniform and lifestyle wardrobe of our customers.
Utilize Data Science to Expand Our Community, Elevate Customer Experience and Drive Intelligent Replenishment
We expect to drive continued growth from our use of proprietary data science. Through hundreds of data attributes associated with millions of customers, we have a unique ability to welcome new healthcare professionals
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to our community and drive repeat business from them. As just one illustration of this, we are able to identify geographic regions where FIGS is under-represented, use our knowledge of existing community members to build machine learning-derived customer segments to identify who is most likely to purchase from us, and drive our customers to a digital experience that is pre-populated with the products most likely to appeal to them.
Similarly, we believe that traditional fixed-time subscription models do not sufficiently leverage data and thus are disconnected from a healthcare professionals actual needs. Instead, we use an intelligent replenishment model that is tied to individualized buying preferences. To us, it is fundamental that we cater to the unique preferences of each healthcare professionalhow often they want to buy certain products, which products they are most likely to buy, and through which channel they are most likely to transact. By leveraging data science, we are able to answer these questions for each member of our large and growing community in increasingly accurate ways, and to create replenishment opportunities that are tied to those customized needs. The healthcare professionals we serve are among the busiest people in the world and we respect their time. Using data science to make their buying experience as seamless and accommodating as possible is a fundamental part of the value we create for our community and we believe will drive continued growth for our business.
Pursue International Expansion
While we expect the majority of our near-term growth to continue to come from the United States, we believe there is a tremendous opportunity over the long term to serve healthcare professionals throughout the rest of the world. According to the Frost & Sullivan study, the number of healthcare professionals and medical students internationally is expected to grow from approximately 118 million in 2020 to an estimated 124 million in 2025, and the total addressable market for international healthcare apparel is expected to grow from an estimated $67.0 billion in 2020 to an estimated $86.0 billion in 2025. In 2020, we successfully piloted international expansion by selling into Australia, Canada and the United Kingdom. Customer reception to date in these markets has been strong and has proven that our brand resonates with customers outside of the United States. Over time, we plan to enter other new markets. We intend to make strategic investments in these markets as we seek to enhance our ability to serve our international customers and further establish FIGS as a global brand. In order to offer a more localized experience to customers internationally, we plan to launch products that are specific to local markets and digital experiences that are tied to local culture. We also intend to offer market-specific languages, currency and content, as well as strategic international shipping and distribution hubs. We plan to leverage our social media strategy and expand our network of Ambassadors to grow our brand awareness globally.
Enter New Professional Markets
Outside of the healthcare apparel industry, we believe we have a compelling long-term opportunity to enter into other uniform-wearing professional markets. In the United States, there are 40 million people outside of healthcare in service-based industries that traditionally wear uniforms every day, such as food service, hospitality, construction and transportation. The occupational nature of these professions is generally hands-on, labor-intensive and often requires apparel with technical specifications. Furthermore, we believe the incumbent apparel manufacturers in these markets suffer from limitations similar to those faced by the legacy healthcare apparel manufacturers. In our view, these marketssimilar to the healthcare apparel markethave long been underserved by incumbent apparel manufacturers and are ripe for disruption. We believe we are strategically positioned to leverage our core competencies to expand into these new markets in the future.
Our Products
We approach product design with the healthcare professional in mind. With an intimate understanding of how medical professionals move, work and interact with colleagues and patients, we seek to design products that solve their unique needs. We are constantly challenging ourselves to create the highest quality and most innovative fabrications, styles and product features for healthcare professionals. Our apparel is comfortable, durable, functional and stylish, all at an affordable price point. As a result of our efforts, healthcare professionals now have a destination to outfit themselves with products that allow them to look, feel and perform at their best.
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We Believe in Continuous Innovation
The needs of healthcare professionals are always changing, and we aim to understand and address their needs through direct interactions with our community. We leverage customer data, customer feedback, focus groups and practitioner testing to understand how to best serve healthcare professionals. Our Ambassadors and other healthcare professionals test our products in real world circumstances and provide valuable and practical feedback. Our tight feedback loop through our digital platform and social media channels, as well as our customer experience team, enables us to quickly incorporate ideas from our community into our product design. The healthcare community is always innovating, and our talented design and product development teams are inspired by this community to create innovative designs that solve real problems. The combinations of art and science, and form and function, create the foundation for every product we make.
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Fabric Innovation for Comfort and Performance. We believe healthcare professionals deserve to be outfitted in technical apparel that allows them to perform at their best, which is why we developed our own proprietary scrubs fabric and fabrication system. Our FIONx scrubs fabric is extremely soft and features Silvadur antimicrobial technology for odor control and fabric durability, four-way stretch to allow for greater mobility, moisture-wicking properties to assist with body temperature regulation and anti-wrinkle for extra convenience. |
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Functional Innovation. We have redefined scrubs to meet the unique needs of healthcare professionals. Our scrubs have a large number of specially designed pockets to comfortably hold professional equipment, such as stethoscopes, iPads, charts, dental loupes and flushes. They also include bungee loops for security badges and other pockets for personal belongings, such as keys, phones, wallets and rings. As an extra surprise, we include a hidden inspirational message on every FIGS product. |
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Fit Innovation. Our technical design team ensures our products are tailored to provide optimal fit, comfort and mobility. In addition, we believe in fit inclusivity and strive to outfit every healthcare professional. Accordingly, we offer seven sizes for women (XXS-2XL), six sizes for men (XS-2XL), three lengths for women (petite, regular, tall) and three lengths for men (short, regular, tall). We also offer various maternity offerings. |
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Style Innovation. We believe that healthcare professionals have the right to be stylish and look good while wearing their uniform. Our design and apparel team is comprised of experts throughout the technical fashion world, ensuring that our products have a sophisticated silhouette in addition to being comfortable, high-performing and functional. Our products are designed for a medical professionals lifestyleon and off shiftto work, at work and from work. |
Product Offerings
Mix of 2020 Net Revenues
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Our core scrubwear assortment, which consists of 13 styles available on our digital platform year-round, represented 82% of our net revenues in 2020. Our core styles consist of three womens scrub tops, four womens scrub pants, three mens scrub tops and three mens scrub pants. We offer these core styles in six core colors as well as new and exciting limited edition colors. In addition to our core scrub styles, we offer scrubs in limited edition styles, which represented 5% of our net revenues in 2020. The remaining 13% of our net revenues was generated from sales of our lifestyle apparel and other non-scrub offerings.
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Core Scrubwear Styles
From left to right: Womens Catarina One-Pocket Scrub Top ($38) & Zamora Jogger Scrub Pants ($48) | Mens Chisec Three-Pocket Scrub Top ($38) & Cairo Cargo Scrub Pants ($48)
Limited Edition Scrubwear Styles
From left to right: Mens Kale Scrub Top ($48) & Lodhi Scrub Pants ($56) | Womens Jundah Scrub Top ($48) & Mundri Scrub Pants ($58) | Womens Keji Scrub Top ($48) | Mens The 20 Pocket Scrub Pants ($56)
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Lifestyle Apparel and Other Non-Scrub Offerings
Our lifestyle apparel and other non-scrub offerings include lab coats, underscrubs, outerwear, activewear, loungewear, compression socks, footwear, masks, face shields and other products. Our lab coats are designed for both students and professionals and feature technical liquid repellent and anti-static fabric with functional pockets for stethoscopes, tablets and pens.
From left to right: Womens Bellvue Long Lab Coat ($118) | Mens Huacho Lab Coat ($128)
Our underscrubs include choices of our supersoft Pima cotton or moisture-wicking performance seamless fabrications.
From left to right: Womens Salta Performance Underscrub ($58) | Mens Makato Performance Underscrub ($58)
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We offer activewear, including sports bras and performance leggings for the active medical professional.
From left to right: 300 Performance Sports Bra ($48) | 300 Performance Legging ($68)
We also offer outwear for healthcare professionals to wear on and off shift, including fleeces and scrubs jackets.
From left to right: Mens On-Shift Fleece ($98) | Womens On-Shift Fleece Vest ($98) | Mens Cobaki Performance Scrub Jacket ($88) | Womens Sydney Performance Scrub Jacket ($88)
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Our mens and womens compression socks feature light compression to help relieve leg fatigue, and we are regularly introducing new sock designs that feature witty sayings or clever puns.
From left to right: Compression Socks Love EKG, Tropical Vibes Black, Pink Pills, Blood, Tropical Vibes Green, Blue Pills ($28)
We also sell a number of other products that are meant to outfit the modern healthcare professional from head-to-toe, including masks, face shields, scrub caps, lanyards and badge reels. We also offer tote bags, fanny packs, backpacks, baseball caps and beanies.
Clockwise from top left: FIGS High-Def Face Shield ($18) | FIONx Face Masks ($8) | FIGS | New Balance ($98)
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Our products work together as part of the FIGS Layering System, and are intentionally designed from base layer to outer layer, on shift to off shift.
Our Community of Awesome Humans
We strive to celebrate, empower and serve healthcare professionals across all levels of experience and areas of expertise. While there is considerable diversity in demographics and income levels within the healthcare sector, we attract a diverse range of healthcare professionals by having a differentiated brand and offering premium products at an affordable price point. We estimate that our active customer mix in 2020 was comprised of the following:
Healthcare Professionals |
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Our customers included a wide range of experience levels and areas of expertise, including registered nurses, nurse practitioners, orthodontists, dental hygienists, pharmacists, physical therapists, occupational therapists, veterinarians, sales representatives, estheticians, speech pathologists, emergency medical technicians, surgeons and healthcare administrators, among others. As a testament to the affordability of our products, in 2020, approximately two-thirds of our customer base earned less than $100,000, and approximately one-third of our customer base earned less than $50,000. Due to the high proportion of our customer mix that is comprised of students and young professionals whose earnings will grow over the course of their careers, we believe we are well positioned to retain and increase engagement of these customers, expanding our share of their uniform and lifestyle wardrobe over time.
Our Marketing Strategy
We create differentiated brand marketing content and utilize performance marketing to drive customers from awareness to consideration to conversion. Our fluidity in brand and performance marketing has led to the creation of a brand characterized by stickiness and high purchase frequency.
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Brand Marketing
We attract and retain customers in large part through our unique ability to engage with our community, which we do across multiple channels, including marketing campaigns, social media and our Ambassador Program.
Marketing campaigns. Our marketing campaigns, which feature some of the Awesome Humans in our community, have established FIGS as a leader of innovative storytelling. All of our creative assets are created in-house, allowing us to launch campaigns at an accelerated pace to celebrate the products we bring to market and the people who will wear them. We launch at least two fully integrated 360-degree marketing campaigns each year that feature Awesome Humans in larger-than-life scenarios, bringing the people, their profession and our brand to life. Campaigns are launched through a holistic, multi-media strategy, where hero messaging and imagery are woven through every platform, including email, digital, display, site, direct-mail, commercials, social media and Ambassadors. We believe our campaigns and inspiring messaging contribute to high brand affinity among our community.
In July 2020, FIGS launched its New Icons Campaign, a 360-degree marketing campaign celebrating healthcare professionals serving on the frontline of the COVID-19 pandemic the way FIGS has always viewed them: as icons. By drawing on the resilience, dedication and endurance required to excel in healthcare, FIGS brought various individuals unique challenges and stories to life. Some of the Awesome Humans featured in The New Icons Campaign included:
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Adam C., M.D.; Emergency Medicine Physician. Adam, an Emergency Medicine Physician, had the unique and challenging experience of fighting the pandemic on both coasts as the surge traveled from New York to California. When COVID-19 hit New York, Adam was just a few months away from completing his Emergency Medicine Residency program. Once his program finished, Adam started his first full-time job in California to fight the second wave of the pandemic. |
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Ana W., R.N.; Emergency Medicine Nurse. As Ana watched the pandemic unfold, she knew she had to leave the comfort of her home in San Diego, California to help her fellow healthcare professionals in New York. With encouragement from her husband and two sons, Ana first joined the frontline responders in Harlem, New York treating COVID-19 patients. She then completed two additional emergency medicine tours in some of the hardest hit areas of Texas leaving her family for upwards of six weeks at a time. |
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Lexie R., R.N.; Pediatric Intensive Care Unit Transport Nurse. Lexie is a nurse and a member of the transport team for her pediatric intensive care unit. Shes on call for up to 96 hours at a time, and when her beeper goes off, she moves into action quickly. She does her job almost entirely in the air, in the confines of a helicopter, with an extremely minimal team. |
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Darien S., M.D., M.B.A.; Emergency Medicine Physician. Darien is a New York-based Emergency Medicine Physician. Darien witnessed the toll of the pandemic while treating patients in the ER. Darien is a medical contributor for ABC News and uses his platforms to educate others, inspire future healthcare professionals and stop the spread of misinformation. |
The New Icons Campaign included commercial films, out-of-home placements, a capsule scrubs collection, digital and social content and the launch of a giving initiative to support the next generation of healthcare professionalsThe New Icons Grants. Five grant winners were selected from thousands of healthcare industry applicants and each received $50,000 to help pay for tuition and student loans.
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Awesome Humans-clockwise from top left: Lexi, Darien, Adam and Ana
Social Media. We were the first healthcare apparel company to have a significant presence on social media. We use social media to foster a dialogue with our community and grow an enthusiastic, highly engaged fan base. On Instagram, our primary platform, we have on average doubled our number of followers year over year since our launch and have a four-year follower growth rate of over 2,400%. Today, we have over half a million followers on Instagram, which is almost twice the number of followers of our nearest competitor. We are proud of our robust following and above-average engagement rate, which was 1.7% in 2020 (versus the industry average of 0.8%). Social media is the primary place for our community to congregate, share stories, follow product launches and interact with our brand, and in turn, our community shares feedback that informs our product and content decisions. We strive to create content that has value and purposewhether to amplify a cause, make people laugh, or to celebrate and educate about our productand social media is where our creativity and deep connection to our community meet.
Our Ambassador Program. FIGS is the first company to have brand ambassadors in the healthcare apparel industry, providing a platform for healthcare professionals to tell their stories. Our Ambassador Program consists of over 250 Awesome Humans from around the world, representing a diverse array of specialties and levels of experience across various professions and geographies. We have formed deep and meaningful relationships with our Ambassadors and their loyalty, love and involvement with our brand fosters organic sharing, storytelling and intimate connections with the millions of healthcare professionals in our community. Our Ambassadors are inspiring, teaching and mentoring the next generation of healthcare professionals, and their impact goes beyond social mediatheyre teaching at conventions, leading organizations and associations, and innovating within their specialties, bringing FIGS with them everywhere they go. Our Ambassadors are an extension of our team, and we regularly speak with them about their lives and how we can help support them. Through annual events, such as our three-day, four-night FIGS Immersion, we bring together our community to share their experiences, heal from trauma and, most importantly, bond. Our Ambassador Program is a microcosm of our FIGS communitythey are invaluable to us, they inspire and inform everything we do, and we would not be where we are today without them.
Performance Marketing
Our performance marketing is rooted in a digital centric approach that aims to offer the right products to the right healthcare professionals at the right times. Our sophisticated performance marketing efforts include retargeting, paid search and product listing advertisements, paid social media advertisements, search engine optimization, personalized email and mobile push notifications through our app. When combined with our community-driven brand marketing, our performance marketing supports attractive customer acquisition and retention metrics. Because we can pinpoint specifically who our customers are and where they live and work, we are able to target them with greater efficiency and less expense than other companies whose customers come from a much less defined group.
Our Teams Business
We have built a differentiated B2B custom platform, known as Teams, to revolutionize, consumerize and elevate what had previously been an outdated buying process for institutional customers. Through Teams, healthcare administrators can seamlessly and efficiently solicit individual orders and then buy FIGS products for their teams with only a few clicks. Our Teams business is centered around partnering with institutional departments and medical offices that wish to standardize and professionalize their teams. Our model is entirely inbound: teams apply to enter our program through an elegant and exclusive, concierge-like experience. We have partnered with departments at renowned institutions such as Childrens Hospital of Los Angeles and the Herman Ostrow School of Dentistry of USC.
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Our Data Analytics
Data is an essential and embedded capability throughout our organization. We have centralized Data Science and Data Engineering teams and de-centralized Data Analysts working directly within each key functional area. This approach enables the harvesting and management of extensive data, the development of a suite of proprietary tools, and the direct and rapid application of data science in core operating activities and decision-making processes throughout the company.
The scale of our data is vast and growing. A rich set of hundreds of data attributes is associated with millions of customers; the customer data set is a blend of first-party, deterministic and observed behaviors along with a complementary, expanded set of enriched elements derived from data science. In addition, we have established a unique approach to capturing and tracking precise and granular data from all stages of the order journey. These extensive data sets are used to build proprietary data science solutions applied to key functions across the company, including product, supply chain, merchandising and inventory management, marketing and customer experience.
Product
Drawing upon our full breadth of data and using data science solutions to cluster, segment and visualize our customers, we are able to develop richly detailed pictures of our customers. We use these personas to shape our unique understanding of our customers and to inform our product development. Our customer and demand prediction models deliver not only direct predictions, but also provide inferences on the drivers of those predictions. Those inferences include powerful insights into the products, features, functionality and other factors that are most likely to drive conversion. We use those inferences as inputs into the product design and development process.
Supply Chain
We have built a proprietary integration for our product lifecycle from purchase order to manufacturing to shipping. This deep integration enables extensive management and oversight of the product flow and also fuels a variety of prediction models (e.g., inventory planning and analytics). By combining the product lifecycle data integration with sophisticated demand predictions, we are able to continuously assess the supply chain and improve efficiency.
Merchandising and Inventory Management
Through our customer ontology, we develop precisely defined customer segments that roll-up into a mosaic representation of our customers. This approach allows us to understand buying behaviors, preferred DTC channels (e.g., site, social, SMS), product preferences and decision drivers. It also enables us to manage purchasing and inventory effectively and efficiently. We use data-driven models to predict and anticipate demand for our products. The high concentration of core scrub sales enables our merchandising and inventory models to be highly predictive, which reliably extends to limited edition product launches through advanced data science techniques. Through our customer and demand predictions, we are able to anticipate optimal times for launch, including day of week and time of day.
Marketing
We are also able to use our customer ontology to create customized segments that can be launched efficiently across media channels. This precise segmentation supports highly tailored messaging and lower costs per impression. We employ a suite of dynamic learning tools to understand creative performance and behavior at a granular customer segment level. These tools enable us to more effectively develop and place our creative assets. Combining our micro-segments and creative optimization drives our ability to create finely tuned campaigns that allow us to reach our target audiences with creative assets that we believe have the highest probability to drive conversion.
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Customer Experience
The integration of our customer ontology and predictions into the engineering of our DTC channels enables customized customer experiences. For example, we are able to use customized email and SMS communication to deliver personalized recommendations and offers that are more likely to convert into a purchase. We continue to evolve the site experience to support tuned recommendations based on prediction models and to offer product bundles based on cluster analysis. Using our customer data, we are able to determine individual customer level predictions to make direct and tailored outreach with messaging that has a higher probability of success for each customer. This means that we can provide a better customer experience by presenting products that the healthcare professionals in our community need, exactly when they need them.
Our Technology
In addition to our use of data analytics throughout the company, we internally develop custom, proprietary technology solutions where doing so would be a true differentiator and core to the unique needs of our community, and we otherwise leverage best-of-breed, third-party components and software to help build out our platform capabilities. Consistent with this philosophy, we created our own headless digital platform, which is a fully customized front-end architecture that allows our community of healthcare professionals to experience features and functionality that are specifically tailored to their needs. We then combine that customized presentation layer with the backend engine from Shopify, which is a proven and industry-leading e-commerce solution. By pairing our own in-house technology with cloud software, we have been able to create a truly differentiated user experience that we can adjust as necessary while also leveraging engineering talent from some of the best SAAS companies in the world to scale rapidly and efficiently.
Supply Chain
We have built a supply chain that is optimized for our business and through which we control the design, development and fulfillment of our products.
Manufacturing
We have a diversified and flexible supply chain that leverages third-party suppliers and manufacturers to produce our raw materials and finished products. We directly and actively manage every step of our product development and production process. The extent to which we manage production is differentiated from the typical model of primarily relying on third-party agents to manage production. We believe our approach has enabled us to produce premium products through greater control of the end-to-end production process.
Our in-house innovation and design team works closely with our suppliers to develop the materials for our products that meet our exact specifications for comfort, stretch, durability, functionality and performance. Approximately 92% of our production utilizes our main scrubwear fabric technology FIONx, which enables us to achieve consistency and scale. Our in-house production team selects our fabric and trim suppliers, directly manages the relationships between these suppliers and our finished product manufacturers, and drives our production allocation strategy and production schedules.
We have 13 core scrubwear styles that we produce year-round, which represented 82% of our net revenues in 2020. Similar to our core FIONx fabric, the continuous production of our core scrubwear styles provides us with consistency and scale in our production. We have three manufacturing partners that produce our core scrubwear styles across nine different facilities in South East Asia. For production outside of our core scrubwear category, we have additional manufacturing partners located across Asia and South America. In total, we manage a diversified supplier network consisting of approximately 30 global production partners across 12 countries.
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As a company devoted to the needs of healthcare professionals, quality is critically important to us. We have our own in-house quality control team and also independent third-party quality controllers that each conduct detailed quality control checks on our fabric, trims and finished products to ensure that our extremely high quality standards are met. We maintain stringent Acceptable Quality Limit, or AQL, standards, which define the level of quality required to pass our inspection processes. Within our core scrubwear, we maintain an AQL of 1.5 for our finished garment production, which is significantly more rigorous than the apparel industry average of 2.5.
We purchase our finished product from our manufacturers on a purchase order basis and do not have any long-term agreements requiring us to use any supplier or manufacturer. We have long-standing relationships with our vendors, which are strengthened by the consistency and longevity of our core fabric and core style profile. Further, unlike typical apparel brands, we offer our manufacturing partners predictable and consistent growth in inventory purchases with less seasonality.
We regularly source new suppliers and manufacturers to support our ongoing innovation and growth, particularly in our non-scrub categories, and we carefully evaluate all new suppliers and manufacturers to ensure they share our standards for quality of manufacturing, ethical working conditions and social and environmental sustainability practices. In line with our values, we require all of our manufacturers to be certified through the Worldwide Responsible Accredited Production (WRAP) program, which is an independent organization dedicated to promoting safe, lawful, humane and ethical manufacturing. Furthermore, we require all suppliers and manufacturers to contractually commit to upholding these standards. Once a vendor is part of FIGS production network, our in-house production team partners with third-party inspectors to closely monitor each partners compliance with applicable laws and FIGS standards on an ongoing basis.
Warehouse and Embroidery
We ship our finished products to customers across the United States as well as internationally to Australia, Canada and the United Kingdom. We distribute our products from our fulfillment center located in City of Industry, California, where we have created an innovative warehouse-within-a-warehouse model at our third-party logistics providers site. Within this space, we also operate a technology-enabled embroidery workshop, through which we offer text and logo embroidery on scrub tops, lab coats and outerwear, enabling our healthcare professionals to tell the world who they are and what they do. Our embroidery workshop is fully staffed by FIGS embroidery team members who complete the application and quality control of our embroidery product. We regularly evaluate our distribution infrastructure and capacity to ensure that we are able to meet our anticipated needs and support our continued growth.
Our People and Human Capital
As a company whose mission is to celebrate, empower and serve those who serve others, we understand that authentically serving humans starts from within. At FIGS, we are creating the world we want to live in, and we work hard to ensure that our company reflects what we want to see in our community. We prioritize building a diverse, inclusive, equitable and supportive team that is driven by creativity and purposeful innovation and represents a mix of gender, racial and ethnic backgrounds, industries and levels of experience.
We are growing fast and recognize that the awesome individuals who work at FIGS are at the center of our success. As of March 31, 2021, we employed 202 team members in the United States across our Santa Monica, California headquarters, our City of Industry, California fulfillment center location and remote locations, with women and people of color representing 68% and 38%, respectively, of our workforce, as of March 10, 2021. None of our employees is represented by a labor union. We have not experienced any work stoppages and we consider our relations with our employees to be good.
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We believe that in order to be successful, each of our employees must feel empowered to be able to show up as their true authentic selves. As we continue to grow, we are proactive in ensuring that every single person at FIGS has a platform to be seen, heard and celebrated. To accomplish this goal, we are intensely focused on our culture, recruiting, retaining and incentivizing our employees, employee development and engagement, diversity, equity and inclusion and community outreach. In 2020, we launched a Culture Committee to foster an empowering and supportive experience for all FIGS employees and help ensure that all FIGS voices are represented and heard. In addition, in light of COVID-19, we introduced new well-being perks, like food delivery stipends and virtual gym memberships, and team-building initiatives to nurture a sense of togetherness during a time when we could not be together physically.
Competition
Competition in the healthcare apparel industry is principally on the basis of product quality, innovation, style, price, brand image, distribution model, as well as customer experience and service. We believe we have competitive advantages from our technical product innovation, our focus on empowering the community of healthcare professionals, and our high quality brand image. In addition, we believe our digitally native DTC distribution strategy differentiates us from the industry incumbents and allows us to establish personal customer relationships and more effectively support healthcare professionals. We are also differentiated by our commitment to community-based marketing that increases brand awareness and strengthens customer loyalty.
The healthcare apparel industry includes established companies as well as new entrants. We compete against wholesalers of healthcare apparel, such as Careismatic Brands, Barco Uniforms, Landau Uniforms and Superior Group of Companies. Additionally, we compete with healthcare apparel aggregated retailers, such as Scrubs & Beyond and Uniform Advantage, as well as DTC brands such as Jaanuu.
Government Regulation
In the United States and the other jurisdictions in which we operate, we are subject to labor and employment laws, laws governing advertising, safety regulations and other laws, including consumer protection regulations that apply to the promotion and sale of merchandise and the operation of fulfillment centers and privacy, data security and data protection laws and regulations, such as the California Consumer Privacy Act (CCPA), the General Data Protection Regulation 2016/679 (GDPR), the ePrivacy Directive and national implementing and supplementing laws in the European Economic Area. Our products sold outside of the United States may be subject to tariffs, treaties and various trade agreements, as well as laws affecting the importation of consumer goods. We monitor changes in these laws and believe that we are in material compliance with applicable laws.
Our Intellectual Property
To establish and protect our proprietary rights, we rely on a combination of trademark, patent, copyright and trade secret laws, as well as contractual restrictions in license agreements, confidentiality and non-disclosure agreements and other contracts. Our intellectual property is an important component of our business, and we believe that our know-how and continuing innovation are important to developing and maintaining our competitive position. We also believe having distinctive marks that are readily identifiable on our products is an important factor in continuing to build our brand and distinguish our products. We consider the FIGS name and CROSS & SHIELD logo trademarks to be among our most valuable intellectual property assets. In addition, we have applied to register or have registered the trademarks for several of our fabrics and product names, and have also sought and/or obtained trademark registrations for several of our tag lines.
As of March 31, 2021, we owned five U.S. trademark registrations, had six pending U.S. trademark applications, owned 53 foreign trademark registrations and had 27 pending foreign trademark applications.
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As of March 31, 2021, we had 14 pending U.S. design patent applications and 39 foreign design registrations. Each of these designs relates to our core scrubs. The term of protection for design patents and design registrations is limited in duration and depends on the jurisdiction in which they are granted. Although our U.S. design patent applications have not yet issued, the term for any resulting issued design patents in the U.S. generally extends 15 years from the date of patent grant. If the foreign design registrations issued to us are maintained until the end of their terms, they are expected to expire in 2025, at which point we intend to renew them, to the extent they are renewable. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective.
While there is no active litigation involving any of our patents or other intellectual property rights, and we have not received any notices of patent or other intellectual property infringement, we may be required to enforce or defend our intellectual property rights against third parties in the future. See Risk FactorsRisks Related to Information Technology, Intellectual Property and Data Security and Privacy for additional information regarding these and other risks related to our intellectual property portfolio and their potential effect on us.
Our Facilities
We are headquartered in Santa Monica, California, where we lease approximately 27,000 square feet of office space under a lease agreement that expires in January 2030. We designed, built and use this location for product innovation and design, content creation, technology, customer experience, as well as our other teams. We also maintain a dedicated photo studio space at this location.
We also operate a 6,000 square foot embroidery workshop within our approximately 166,700 square feet of dedicated warehouse space at our third-party logistics providers location in City of Industry, California, which we lease pursuant to a services agreement.
We believe that these facilities are sufficient to meet our current and anticipated future needs and that suitable additional space will be available as needed to accommodate expansion of our operations.
Legal Proceedings
On February 22, 2019, Strategic Partners, Inc., or SPI, filed an action against us (later naming our co-founders and co-Chief Executive Officers) in the Superior Court for the County of Los Angeles, in which SPI alleges, among other things, false advertising, unfair business practices, untrue and misleading advertising, intentional interference with prospective economic relations, conversion and breach of fiduciary duty. The case was removed to the U.S. District Court for the Central District of California in March 2019 and is ongoing. On September 3, 2019, SPI filed an additional action against our co-founders and co-Chief Executive Officers (later naming us) in Los Angeles Superior Court covering the same subject matter as the previously filed federal action; this later state court action has been stayed until the conclusion of the federal court action. We believe the claims asserted by SPI in both actions are without basis or merit, and we intend to vigorously defend against such claims; however, we cannot be certain of the outcome of these proceedings and, if determined adversely to us, our business and financial condition may be adversely affected.
In addition to the matter described above, from time to time, we have been and may become subject to arbitration, litigation or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm and other factors.
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The following table provides information regarding our executive officers, directors and director nominees as of the date of this prospectus.
Name |
Age |
Position(s) |
||||
Executive Officers: |
||||||
Heather Hasson |
39 |
Co-Founder, Co-Chief Executive Officer and Director |
||||
Trina Spear |
37 |
Co-Founder, Co-Chief Executive Officer and Director |
||||
Jeffrey D. Lawrence |
47 |
Chief Financial Officer |
||||
Non-Employee Directors and Director Nominees: |
||||||
J. Martin Willhite(1)(3) |
50 |
Director |
||||
Sheila Antrum(1)(4) |
62 |
Director Nominee |
||||
Michael Soenen(2)(3)(4) |
51 |
Director Nominee |
||||
Christopher Varelas(1)(2)(3)(4) |
57 |
Director Nominee |
(1) |
Member of the Nominating and Corporate Governance Committee. |
(2) |
Member of the Audit Committee. |
(3) |
Member of the Compensation Committee. |
(4) |
Each individual will join our board of directors immediately upon the effectiveness of the registration statement of which this prospectus is a part. |
Executive Officers
Heather Hasson co-founded our company and serves as our co-Chief Executive Officer and as chairperson of our board of directors. Prior to co-founding FIGS, Ms. Hasson was an entrepreneur, having served as founder and CEO of Heather Hasson bags, a high-end bag line, and FIGS Ties, a tie and scarf company. Since January 2021, Ms. Hasson also has served as a member of the board of directors of G Squared Ascend I Inc. and G Squared Ascend II Inc., two blank check companies, and as a member of the board of directors of RxArt, a non-profit whose mission is to help children heal through the extraordinary power of visual art. Ms. Hasson holds a B.A. in Political Science from the University of Wisconsin-Madison. We believe that Ms. Hasson is qualified to serve as a member of our board of directors based on her experience in the apparel industry and the knowledge of our company she brings as our co-founder and co-Chief Executive Officer.
Trina Spear co-founded our company and serves as our co-Chief Executive Officer and as a member of our board of directors. Prior to co-founding FIGS, Ms. Spear served as an Associate at the Blackstone Group Inc. Ms. Spear began her career at Citigroup Global Markets Inc. Since August 2020, Ms. Spear also has served as a member of the board of directors of one, a blank check company. Ms. Spear holds a B.A. in Economics from Tufts University and an M.B.A. from Harvard Business School. We believe that Ms. Spear is qualified to serve as a member of our board of directors based on the perspective and experience she brings as our co-founder and co-Chief Executive Officer.
Jeffrey D. Lawrence has served as our Chief Financial Officer since December 2020. Prior to joining our company, Mr. Lawrence served as Executive Vice President and Chief Financial Officer of Dominos Pizza, Inc., a global, publicly traded restaurant chain, where he had worked since May 2000. Prior to joining Dominos, Mr. Lawrence was a Manager of Audit and Business Advisory Services at Arthur Andersen LLP, an accounting firm, from July 1995 to May 2000. Mr. Lawrence holds a B.B.A. in Accounting from Wayne State University and an M.B.A. from the Stephen M. Ross School of Business at the University of Michigan.
Non-Employee Directors and Director Nominees
J. Martin Willhite has served as a member of our board of directors since February 2019. Since June 2017, Mr. Willhite has served as Vice Chairman at Tulco, LLC, an investment firm. Before that, from October 2011 to
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June 2017, Mr. Willhite served as General Counsel at Legendary Entertainment, a film and television production company, where he also served as Chief Operating Officer from April 2013 to June 2017. Before that, Mr. Willhite was a Partner at Munger, Tolles & Olson, LLP, a law firm. Mr. Willhite holds a B.A. in Philosophy from Brigham Young University and a J.D. from Loyola Law School. We believe that Mr. Willhite is qualified to serve as a member of our board of directors based on his broad leadership, operational, legal and transactional experience.
Sheila Antrum will join our board of directors upon the effectiveness of the registration statement of which this prospectus is a part. Since 2007, Ms. Antrum has served in roles of increasing responsibility at the University of California, including serving as the Senior Vice President and Chief Operating Officer of UCSF Health since August 2017, UCSF Health President-Adult Services since September 2015 and the Chief Nursing Officer of UCSF Medical Center from September 2007 to 2017 and again as interim Chief Nursing Officer from 2019 to 2020. Before that, from 2003 to 2007, Ms. Antrum served as the Chief of Ambulatory Operations and Associate Director of Clinical Cancer Center Operations at the University of California San Diego Medical Center. Ms. Antrum also has served on the board of directors of Integer Holdings Corporation since February 2021. Ms. Antrum holds a B.A. of Science in Nursing from Hampton University and a Masters in Health Services Administration from the University of Michigan School of Public Health. We believe Ms. Antrum is qualified to serve as a member of our board of directors based on her extensive leadership experience in the healthcare space.
Michael Soenen will join our board of directors upon the effectiveness of the registration statement of which this prospectus is a part. From 2015 through 2020, Mr. Soenen served as a member of the Investment Committee and Co-Head of Operations Group at Valor Equity Partners L.P., an investment firm. Before that, from 1997 to 2008, Mr. Soenen served in roles of increasing responsibility at FTD Group, Inc., a provider of floral and specialty gift products, including as President, Chief Executive Officer and Chairman from 2004 to 2008. Mr. Soenen also currently serves on the boards of directors of several privately-held companies. Mr. Soenen holds a B.A. in Economics from Kalamazoo College. We believe that Mr. Soenen is qualified to serve as a member of our board of directors based on his broad leadership, operational and transactional experience.
Christopher Varelas will join our board of directors upon the effectiveness of the registration statement of which this prospectus is a part. Since January 2008, Mr. Varelas has served as a Founding Partner of Riverwood Capital, a private equity firm. Before that from 1990 to 2008, Mr. Varelas served in various roles of increasing responsibility at Salomon Brothers and later Citigroup, including Global Head of Technology, Media & Telecom Investment Banking and Head of Citigroups National Investment Bank. Mr. Varelas also currently serves on as a member of the boards of directors of several private companies and non-profit institutions. Mr. Varelas holds a B.A. in Economics from Occidental College and an M.B.A. from the University of Pennsylvanias Wharton School. We believe that Mr. Varelas is qualified to serve as a member of our board of directors based on his broad financial and transactional experience.
Family Relationships
There are no family relationships among any of our director nominees, directors or executive officers.
Board of Directors Composition
Our business and affairs are managed under the direction of our board of directors. Our board of directors currently consists of six members with no vacancies.
Pursuant to our amended and restated certificate of incorporation as currently in effect and the amended and restated stockholders agreement, Heather Hasson, Trina Spear and J. Martin Willhite have been designated to serve as members of our board of directors. Pursuant to our amended and restated stockholders agreement, the stockholders who are party to the agreement have agreed to vote their respective shares to elect (1) Ms. Hasson, for so long as she remains employed by the company and desires to serve on the board of directors, (2) Ms. Spear, for
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so long as she remains employed by the company and desires to serve on the board of directors, and (3) one director designated by Tulco, LLC, currently J. Martin Willhite. The provisions of the amended and restated stockholders agreement by which these directors are currently elected will terminate in connection with this offering.
We, our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, Tulco, LLC and certain related persons and entities will enter into a voting agreement, effective immediately prior to the completion of this offering, under which such parties will agree, following the offering and upon the terms set forth in the voting agreement, to vote their shares for the election of each of Ms. Hasson, Ms. Spear and, for so long as Tulco, LLC and its permitted transferees hold, in the aggregate, at least 10% of the total number of outstanding shares of all classes of our common stock (calculated on a diluted basis to include any issued and outstanding options, RSUs or other equity awards, whether vested or unvested), an individual designated by Tulco, LLC, who shall initially be Mr. Willhite, to our board of directors, and to vote against their removal. The voting agreement will be in effect until: (1) the time at which neither the co-founders nor any of their permitted transferees hold shares of Class B common stock, (2) with respect to Tulco, LLC, the time at which Tulco, LLC and its permitted transferees cease to hold, in the aggregate, at least 10% of the total number of outstanding shares of all classes of our common stock (calculated on a diluted basis to include any issued and outstanding options, RSUs or other equity awards, whether vested or unvested) or (3) a final conversion event. The conversion of our Class B common stock to Class A common stock is provided for in our amended and restated certificate of incorporation, see section titled Description of Capital StockCommon StockConversion.
After this offering, the number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective immediately prior to 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
Our amended and restated certificate of incorporation that will be in effect upon the completion of this offering provides that, upon the completion of this offering, our board of directors will be divided into three classes with staggered three-year terms. Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. 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. Each directors term will continue until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our directors will be divided among the three classes as follows:
|
Class I directors, whose initial term will expire at our first annual meeting of stockholders following this offering, will consist of Trina Spear and Sheila Antrum; |
|
Class II directors, whose initial term will expire at our second annual meeting of stockholders following this offering, will consist of Heather Hasson and Michael Soenen; and |
|
Class III directors, whose initial term will expire at our third annual meeting of stockholders following this offering, will consist of J. Martin Willhite and Christopher Varelas. |
Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the completion of this offering provide that only our board of directors may fill vacancies on our board. We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors.
The classification of our board of directors may have the effect of delaying or preventing changes in our control or management. See the section titled Description of Capital StockAnti-Takeover Provisions
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Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws Provisions for additional information.
Director Independence
We have applied to have our common stock listed on the NYSE. Upon completion of this offering, our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC will together control a majority of the voting power of our outstanding common stock and intend to enter into a voting agreement with respect to the election of directors. As a result, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements.
Under the rules of the NYSE, a director will only qualify as an independent director if, in the opinion of that companys 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. As a controlled company we have elected not to comply with the requirement that independent directors must comprise a majority of our board of directors and that our compensation and nominating and corporate governance committees be independent.
Audit committee members must still 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: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries; or (2) 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. In connection with 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 each of Ms. Antrum and Messrs. Soenen and Varelas 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 us with regard to each directors business and personal activities and current and prior relationships as they may relate to us and our management, including the beneficial ownership of our capital stock by each non-employee director and the transactions involving them described in the section titled Certain Relationships and Related Party Transactions.
Lead Independent Director
Heather Hasson serves as both our Co-Chief Executive Officer and as chairperson of our board of directors. Our board of directors will adopt, effective prior to the completion of this offering, corporate governance guidelines that provide that one of our independent directors will serve as our lead independent director. Our board of directors has appointed Christopher Varelas to serve as our lead independent director. As lead independent director, Mr. Varelas will preside over periodic meetings of our independent directors, serve as a liaison between the chairperson of our board of directors and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.
Committees of Our Board of Directors
Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below as of the completion of this offering. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Each committee will operate under a written charter approved by our board of directors that satisfies the applicable rules of the SEC and the listing standards of the NYSE. Following this offering, copies of each committees charter will be posted on the Investor Relations section of
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our website. The reference to our website in this prospectus does not include or incorporate by reference the information on our website into this prospectus.
Audit Committee
Our audit committee oversees our corporate accounting and financial reporting process and assists our board of directors in monitoring our financial systems. Our audit committee will be responsible for, among other things:
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appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; |
|
discussing with our independent registered public accounting firm their independence from management; |
|
reviewing with our independent registered public accounting firm the scope and results of their audit; |
|
approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; |
|
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; |
|
reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls and compliance with legal and regulatory requirements; and |
|
establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. |
Effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, our audit committee will consist of Michael Soenen and Christopher Varelas, with Mr. Varelas serving as chair. We intend to rely on the phase-in period available to newly public companies under NYSE listing standards with respect to the requirement that our audit committee have at least three members. Our board of directors has affirmatively determined that Messrs. Soenen and Varelas meet the requirements for independence under the current NYSE rules and the additional independence standards applicable to audit committee members established pursuant to Rule 10A-3 under the Exchange Act. In addition, our board of directors has determined that Mr. Varelas is an audit committee financial expert as defined in Item 407(d) of Regulation S-K promulgated under the Securities Act. Each member of our audit committee is financially literate.
Compensation Committee
Our compensation committee oversees our compensation policies, plans and benefits programs. Our compensation committee will be responsible for, among other things:
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reviewing and approving corporate goals and objectives relevant to the compensation of our co-Chief Executive Officers, evaluating our co-Chief Executive Officers performance in light of these goals and objectives and setting compensation; |
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reviewing and setting or making recommendations to our board of directors regarding the compensation of our other executive officers; and |
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reviewing and approving or making recommendations to our board of directors regarding our incentive compensation and equity-based plans and arrangements. |
Effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, our compensation committee will consist of Michael Soenen, Christopher Varelas and J. Martin Willhite, with Mr. Soenen serving as chair. As a controlled company, we intend to rely on the exemption from the
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requirement that we have a compensation committee composed entirely of independent directors. Each of Messrs. Soenen, Varelas and Willhite is a non-employee director, as defined in Section 16b-3 of the Exchange Act.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee oversees and assists our board of directors in reviewing and recommending nominees for election as directors. Our nominating and corporate governance committee will be responsible for, among other things:
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identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board of directors; |
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recommending to our board of directors the nominees for election to our board of directors at annual meetings of our stockholders; |
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evaluating the overall effectiveness of our board of directors; and |
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developing and recommending to our board of directors a set of corporate governance guidelines and principles. |
Effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, our nominating and corporate governance committee will consist of Sheila Antrum, Christopher Varelas and J. Martin Willhite, with Mr. Willhite serving as chair. As a controlled company, we intend to rely on the exemption from the requirement that we have a nominating and corporate governance committee composed entirely of independent directors.
Board Diversity
Each year, our nominating and corporate governance committee will review, with the board of directors, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates, our nominating and corporate governance committee will consider factors including, without limitation, an individuals character, integrity, judgment, potential conflicts of interest, other commitments and diversity. While we have no formal policy regarding board diversity for our board of directors as a whole nor for each individual member, the nominating and corporate governance committee does consider such factors as gender, race, ethnicity, experience and area of expertise, as well as other individual attributes that contribute to the total diversity of viewpoints and experience represented on the board of directors.
Role of the Board in Risk Oversight
Our board of directors has an active role, as a whole and also at the committee level, in overseeing the management of our risks. Our board of directors is responsible for general oversight of risks and regular review of information regarding our risks, including credit risks, liquidity risks and operational risks. The compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The audit committee is responsible for overseeing the management of risks relating to accounting matters and financial reporting. The nominating and corporate governance committee is responsible for overseeing the management of risks associated with the independence of our board of directors and potential conflicts of interest. Although each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed through discussions from committee members about such risks. Our board of directors believes its administration of its risk oversight function has not negatively affected our board of directors leadership structure.
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Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of our company. 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 of directors or compensation committee.
Code of Business Conduct and Ethics
We will adopt a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officers, principal financial officer, principal accounting officer or controller or persons performing similar functions prior to the completion of this offering. Following this offering, a current copy of the code will be posted on the Investor Relations section of our website.
Non-Employee Director Compensation
2020 Director Compensation Program
During the year ended December 31, 2020, J. Martin Willhite was our only non-employee director, and as reflected in the table below, we did not provide him with any cash, equity or other compensation. Our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, are also members of our board of directors but did not receive any additional compensation for service as a director. See the section titled Executive Compensation for more information.
Name |
Fees Earned
or Paid in Cash |
Option
Awards ($) |
Total ($) | |||||||||
J. Martin Willhite |
$ | | $ | | $ | |
We have reimbursed, and will continue to reimburse, any non-employee director for his or her reasonable out-of-pocket expenses incurred in attending board of directors and committee meetings.
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 approved a non-employee director compensation policy, which will take effect following the completion of this offering, as further described below.
Director IPO Grants
In connection with this offering, our board of directors approved the grant of restricted stock unit awards pursuant to the 2021 Plan to certain of our non-employee directors: Christopher Varelas, Michael Soenen, Sheila Antrum and J. Martin Willhite. These restricted stock unit awards will become effective upon the closing of this offering, and each has a value of $150,000 (with the number of shares determined based on the initial public offering price per share of our Class A common stock in this offering). Each award will vest in full on the earlier of the first anniversary of the closing of this offering and our annual stockholders meeting in 2022, subject to continued service as of such date.
Post-IPO Director Compensation Program
In connection with this offering, our board of directors adopted and our stockholders approved a nonemployee director compensation program, or the Director Compensation Program, which will become effective in connection with the completion of this offering. The Director Compensation Program will provide for annual retainer fees and long-term equity awards for certain of our non-employee directors, which initially include Christopher Varelas, Michael Soenen, Sheila Antrum and J. Martin Willhite, each, an Eligible Director. The material terms of the Director Compensation Program are summarized below.
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The Director Compensation Program consists of the following components:
Cash Compensation
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Annual Retainer: $50,000 |
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Annual Committee Chair Retainer: |
○ |
Audit: $20,000 |
○ |
Compensation: $15,000 |
○ |
Nominating and Governance: $10,000 |
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Annual Committee Member (Non-Chair) Retainer: |
○ |
Audit: $10,000 |
○ |
Compensation: $7,500 |
○ |
Nominating and Governance: $5,000 |
Annual cash retainers will be paid in quarterly installments in arrears and will be pro-rated for any partial calendar quarter of service.
Equity Compensation
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Initial Grant: Each Eligible Director who is initially elected or appointed to serve on the Board after the effective date of this offering automatically will be granted, on the date on which such Eligible Director is appointed or elected to serve on the Board, a restricted stock unit award with a value of approximately $150,000, multiplied by a fraction (i) the numerator of which is the difference between 365 and the number of days from the date of the immediately preceding annual meeting of the Companys stockholders (or the effective date of this offering, if there is no preceding annual meeting date) through the election or appointment date and (ii) the denominator of which is 365. These initial grants will vest in full on the earlier to occur of (x) the one-year anniversary of the applicable grant date and (y) the date of the next annual meeting of the Companys stockholders following the grant date, subject to such Eligible Directors continued service through the applicable vesting date. |
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Annual Grant: An Eligible Director who is serving on our board of directors as of the date of the annual meeting of the Companys stockholders each calendar year (beginning with calendar year 2022) will be granted, on such annual meeting date, a RSU award with a value of approximately $150,000. Each annual grant will vest in full on the earlier to occur of (A) the first anniversary of the applicable grant date and (B) the date of the next annual meeting following the grant date, subject to such Eligible Directors continued service through the applicable vesting date. |
In addition, each Initial Grant and Annual Grant will vest in full upon a change in control of the Company (as defined in the 2021 Plan) if the Eligible Director will not become a member of the board of the Company or the ultimate parent of the Company as of immediately following such change in control.
Compensation under our Director Compensation Program will be subject to the annual limits on non-employee director compensation set forth in the 2021 Plan, as described in the section titled Executive Compensation.
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Executive Compensation
This section discusses the material components of the executive compensation program for our executive officers who are named in the 2020 Summary Compensation Table below. In 2020, our named executive officers were as follows:
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Heather Hasson, Co-Chief Executive Officer; |
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Trina Spear, Co-Chief Executive Officer; and |
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Jeffrey D. Lawrence, Chief Financial Officer. |
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of this offering may differ materially from the currently planned programs summarized in this discussion.
2020 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for 2020:
Name and Principal Position |
Year | Salary ($) | Bonus ($)(1) |
Stock
Awards ($)(2) |
Option
Awards ($)(2) |
All Other
Compensation(4) ($) |
Total ($) | |||||||||||||||||||||
Heather Hasson |
2020 | 456,154 | 1,000,000 | | 38,125,365 | 47,329 | 39,628,848 | |||||||||||||||||||||
Co-Chief Executive Officer |
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Trina Spear |
2020 | 456,154 | 1,000,000 | | 38,125,365 | 64,212 | 39,645,731 | |||||||||||||||||||||
Co-Chief Executive Officer |
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Jeffrey D. Lawrence(3) |
2020 | 1,923 | | | 5,402,086 | | 5,404,009 | |||||||||||||||||||||
Chief Financial Officer |
(1) |
Amounts include discretionary bonuses paid to Mses. Hasson and Spear for their performance in 2020. We provide additional information regarding the annual bonuses in Narrative to Summary Compensation Table2020 Bonuses below. |
(2) |
Amounts reflect the full grant-date fair value of stock awards and stock options granted during 2020, rather than the amounts paid to or realized by the named individual. In 2020, Mses. Hasson and Spear were granted RSUs that are subject to both service-based and liquidity-based vesting conditions. As required pursuant to SEC disclosure rules, the grant-date fair values of these awards included in the table above were computed based on the probable outcomes of the performance conditions as of the applicable grant date; achievement of the performance conditions for these RSUs was not deemed probable on the grant date and, accordingly, no value is included in the table for these awards. Assuming achievement of the performance conditions, the values of these RSUs to each of Mses. Hasson and Spear, as of the grant date, are $12,206,554. We provide information regarding the assumptions used to calculate the value of all stock awards and option awards made to named executive officers in Note 12 to the financial statements included in this prospectus. |
(3) |
Mr. Lawrences employment with us commenced on December 31, 2020; therefore, certain amounts for Mr. Lawrence, such as base salary, reflect a partial year of service. |
(4) |
Amounts include Company reimbursement of legal fees. |
Narrative to Summary Compensation Table
2020 Salaries
The named executive officers receive a base salary to compensate them for services rendered to us. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executives skill set, experience, role and responsibilities.
In 2020, Mses. Hasson and Spear were each entitled to receive an annual base salary of $375,000, which was increased to $650,000 in September 2020. Mr. Lawrences annual base salary is $500,000. The 2020 Summary Compensation Table above shows the actual base salaries paid to each named executive officer in 2020.
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2020 Bonuses
In 2020, each of Mses. Hasson and Spear was eligible to receive an annual discretionary cash bonus in an aggregate amount no greater than $1,000,000, with such amount determined in the sole discretion of our board of directors. The actual bonuses paid to each executive in 2020 are set forth above in the Summary Compensation Table in the column entitled Bonus. Because Mr. Lawrences employment with us commenced on December 31, 2020, he did not receive a bonus for 2020.
Equity Compensation
We historically have used stock options as the primary incentive for long-term compensation to our employees (including our named executive officers) because they are able to profit from stock options only if our stock price increases relative to the stock options exercise price, which generally is set at or above the fair market value of our common stock as of the applicable grant date. Generally, the stock options we grant vest in equal monthly installments over four years, either monthly during the four-year period or monthly following a one-year cliff, subject to the employees continued service with us as of the vesting date. In 2020, we granted restricted stock units to our co-Chief Executive Officers, Heather Hasson and Trina Spear. The equity awards granted to our named executive officers in 2020 are discussed below.
2020 Stock Option Awards
On September 16, 2020, we granted nonqualified stock options covering 10,236,060 shares of our common stock to each of Mses. Hasson and Spear. The stock options have an exercise price of $5.10 per share, which is a premium exercise price to the fair market value on the grant date, and vest in equal monthly installments over the five-year period following the grant date. If the executives service is terminated (i) by our company other than for death, disability, or cause or (ii) by executive for good reason (each, as defined in the applicable executives employment agreement), and, in each case, such termination occurs (a) during the period beginning 3 months prior and ending 12 months following a change in control and (b) prior to the second anniversary of the grant date, then 100% of any then-unvested shares subject to the option shall become fully vested immediately prior to the later of the executives termination and the change in control. If a change in control occurs on or after the second anniversary of the grant date, then 100% of the then-unvested shares subject to the option will accelerate and vest in full immediately prior to the change in control, provided that executive remains in continuous service through the consummation of the change in control.
In connection with Mr. Lawrences commencement of employment with us on December 31, 2020, we granted Mr. Lawrence a stock option covering 2,047,212 shares of our common stock. The stock option has an exercise price of $6.02 per share and vests over a four-year period, with 25% of the shares subject to the option vesting on the first anniversary of Mr. Lawrences start date with our company and the remaining shares vesting in substantially equal monthly installments thereafter. If Mr. Lawrences service is terminated by us without cause or by him for good reason (each, as defined in his offer letter), in either case, within 12 months following a change in control of our company (as defined in his offer letter), then 100% of the then-unvested shares subject to the option will vest in full.
2020 RSU Awards
On June 26, 2020, we granted RSU awards covering 2,705,220 shares of our common stock to each of Mses. Hasson and Spear. The RSU awards are subject to a service-based requirement and a liquidity event requirement, and the RSUs will vest on the first date upon which both requirements are satisfied. The RSUs will satisfy the service-based requirement in equal quarterly installments over the four-year period following December 31, 2019, subject to the executives continued service. The liquidity event requirement will be satisfied as to any then-outstanding RSUs on the earlier to occur of (i) the effective date of a registration statement of our company filed under the Securities Act for the sale of our companys common stock or (ii) immediately prior to the closing of a change in control of our company, in each case, subject to the executives continued service.
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If the executives service terminates due to a termination by our company without cause prior to the satisfaction of the liquidity event requirement, then all RSUs for which the service-based requirement already has been satisfied will accelerate and vest. Further, if the executives service is terminated (i) by our company (or a successor or affiliate) other than for death, disability, or cause or (ii) by the executive for good reason (each, as defined in the applicable executives employment agreement), and, in each case, such termination occurs (a) during the period beginning 3 months prior and ending 12 months following a change in control and (b) prior to the second anniversary of the grant date, then 100% of any then-outstanding and unvested RSUs will accelerate and vest. If a change in control occurs on or after the second anniversary of the grant date, then 100% of the RSUs that are then outstanding and unvested will accelerate and vest immediately prior to the change in control, provided that the executive remains in continuous service through such time.
Equity Compensation Plans
We currently maintain the Amended 2016 Equity Incentive Plan, or the 2016 Plan, in order to help us secure and retain the services of eligible individuals, provide incentives for such individuals to exert maximum efforts for the success of our company and our affiliates and provide a means by which such individuals may benefit from increases in value of our common stock. As noted above, we generally offer stock options to certain of our employees, including our named executive officers, and consultants as the long-term incentive component of our compensation program. For additional information about the 2016 Plan, please see the section titled 2016 Equity Incentive Plan below. As mentioned below, in connection with the completion of this offering, no further awards will be granted under the 2016 Plan.
In connection with this offering, our board of directors has adopted, and our stockholders have approved, the 2021 Equity Incentive Plan, referred to below as the 2021 Plan, in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and our affiliates, and to enable us to obtain and retain services of these individuals, which we believe is essential to our long-term success. For additional information about the 2021 Plan, please see the section titled 2021 Equity Incentive Plan below.
IPO-Related Equity Award Actions
Pursuant to the amended and restated employment agreements entered into with each of Mses. Hasson and Spear in connection with this offering, our board of directors approved the grant of equity awards to each of Mses. Hasson and Spear under the 2021 Plan. With respect to each award, $7,500,000 was granted in the form of a nonqualified stock option and $2,500,000 was granted in the form of an RSU award, both based on the IPO price, or the IPO awards. The aggregate number of shares of our Class A common stock that will be subject to the stock options will be determined based on the initial public offering price per share of our common stock in this offering; and will cover 1,997,101, 1,825,920 or 1,681,768 shares of our Class A common stock based on the low point, midpoint and high point, respectively, of the price range for our Class A common stock set forth on the cover page of the prospectus.
The stock option will vest and become exercisable as to 1/48th of the shares of Class A common stock underlying the stock option on each monthly anniversary of the grant date, and the RSU award will vest as to 1/16th of the award on each quarterly anniversary of the grant date, in each case, subject to the executives continued service with us through the applicable vesting date. If the executives service terminates due to a termination by our company without cause or by the executive for good reason, or due to death or disability (each, as defined in the applicable executives amended and restated employment agreement), then each award will vest in full.
In addition, our board of directors approved the accelerated vesting of the outstanding stock options (excluding, for clarity, the IPO award) held by Ms. Hasson, to be effective as of the closing of this offering.
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In addition, our board of directors approved the grant of stock options, RSU awards and restricted stock awards pursuant to the 2021 Plan to certain of our directors, consultants and employees in connection with this offering. The stock option grants will become effective immediately following the determination of the initial public offering price per share of our common stock, and each will have a per share exercise price equal to that initial public offering price. The restricted stock unit and restricted stock awards will become effective on the completion of this offering.
The aggregate dollar-denominated value of the RSU awards and restricted stock will be approximately $4,142,435, and the number of shares of our Class A common stock subject to these awards will be determined based on the initial public offering price per share of our common stock in this offering. The restricted stock unit awards that our directors will receive are further described under the section titled, ManagementNon-Employee Director CompensationDirector IPO Grants below.
The aggregate value (determined using a Black-Scholes option value) of the stock option grants will be approximately $3,634,590. The number of shares of our Class A common stock subject to these stock options will be determined based on the initial public offering price per share of our common stock in this offering. The following table presents the aggregate number of stock options that our consultants and employees will receive in connection with this offering, in each case, based on the midpoint of the price range for our common stock set forth on the cover page of the prospectus, as well as the low and high points of the range.
Price Per Share - $16.00 | Price Per Share - $17.50 | Price Per Share - $19.00 | ||
483,909 | 442,432 | 407,503 |
Other Elements of Compensation
Retirement Plans
We currently maintain a 401(k) retirement savings plan, or the 401(k) plan, for our employees, including our named executive officers, who satisfy certain eligibility requirements. Our named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees. The Code allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we match contributions made by participants in the 401(k) plan up to a specified percentage of the employee contributions, and these matching contributions are fully vested as of the date on which the contribution is made, provided that the participant has completed one year of service with us. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.
Employee Benefits and Perquisites
All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including medical, dental and vision benefits.
We believe the perquisites described above are necessary and appropriate to provide a competitive compensation package to our named executive officers.
No Tax Gross-Ups
We have not made gross-up payments to cover our named executive officers personal income taxes that may pertain to any of the compensation paid or provided by our company.
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Outstanding Equity Awards at Year-End
The following table summarizes the number of shares of common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2020. Each equity award listed in the following table was granted under the 2016 Plan and covers our Class A common stock. Each equity award held by Mses. Hasson and Spear will be reclassified to cover shares of our Class B common stock in connection with this offering.
Grant Date | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||
Name |
Number
of Securities Underlying Unexercised Options (#) Exercisable |
Number of
Securities Underlying Unexercised Options (#) Unexercisable |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option
Exercise Price ($) |
Option
Expiration Date |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
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Heather Hasson |
02/22/2018 | (1) | 2,707,497 | 712,503 | | 0.86 | 02/21/2028 | | | |||||||||||||||||||||||
06/27/2018 | (2) | 900,000 | | | 1.37 | 06/26/2028 | | | ||||||||||||||||||||||||
06/26/2020 | (3) | | | | | | 2,705,220 | 23,123,619 | ||||||||||||||||||||||||
09/16/2020 | (4) | 511,803 | 9,724,257 | | 5.10 | 09/15/2030 | | | ||||||||||||||||||||||||
Trina Spear |
02/22/2018 | (1) | 6,091,875 | 1,603,125 | | 0.86 | 02/21/2028 | | | |||||||||||||||||||||||
06/27/2018 | (2) | 900,000 | | | 1.37 | 06/26/2028 | | | ||||||||||||||||||||||||
06/26/2020 | (3) | | | | | | 2,705,220 | 23,123,619 | ||||||||||||||||||||||||
09/16/2020 | (4) | 511,803 | 9,724,257 | | 5.10 | 09/15/2030 | | | ||||||||||||||||||||||||
Jeffrey D. Lawrence |
12/31/2020 | (5) | | 2,047,212 | | 6.03 | 12/30/2030 | | |
(1) |
This option vests and becomes exercisable with respect to 1/48 of the total number of shares underlying the option on each monthly anniversary of the vesting commencement date. In the event of a change in control of our company (as defined in the 2016 Plan), 100% of the shares subject to the option shall vest as of immediately prior to the change in control. |
(2) |
This option vests with respect to 1/48 of the total number of shares underlying the option on each monthly anniversary of the vesting commencement date. In the event of a change in control of our company (as defined in the 2016 Plan), 100% of the shares subject to the option shall vest as of immediately prior to the change in control. This option has an early exercise feature, such that, if early exercised, the unvested shares are subject to a right of repurchase by the Company in connection with a termination of service. |
(3) |
This RSU award vests upon the satisfaction of both a (i) service-based requirement, which is satisfied in substantially equal quarterly installments over the four-year period following December 31, 2019, and (ii) liquidity event requirement, which is satisfied upon the earlier to occur of (a) the effective date of a registration statement of our company filed under the Securities Act for the sale of our companys common stock or (b) immediately prior to the closing of a change in control of our company. Please refer to 2020 RSU Awards above for additional detail regarding the vesting of this award, including accelerated vesting. |
(4) |
This option vests and becomes exercisable with respect to 1/60 of the total number of shares underlying the option on each monthly anniversary of the grant date. Please refer to 2020 Stock Option Awards above for additional detail regarding the vesting of this award, including accelerated vesting. |
(5) |
This option vests and becomes exercisable over a four-year period, with 25% of the total number of shares underlying the option vesting on the first anniversary of Mr. Lawrences start date with us, and 1/48 of the total number of shares underlying the option vesting on each monthly anniversary thereafter. If Mr. Lawrences employment is terminated by us without cause or by him for good reason within 12 months following a change in control, then 100% of the then-unvested shares subject to the option will vest in full. |
Executive Compensation Arrangements
The following is a summary of the compensatory agreements we have entered into with our named executive officers.
Employment Agreements with Heather Hasson and Trina Spear. We are party to employment agreements with our co-Chief Executive Officers Heather Hasson and Trina Spear, each of which was originally entered into in October 2017 and amended in September 2020. Each of these employment agreements will be amended and
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restated upon the effectiveness of the registration statement of which this prospectus forms a part (the pricing, and such agreements, the A&R agreements).
Pursuant to the employment agreements (as amended in September 2020), each of Mses. Hasson and Spear is entitled to receive a base salary of $650,000, which will be increased to $1,000,000 under the A&R agreements. In addition, each is eligible to receive an annual discretionary bonus in an aggregate amount no greater than $1,000,000 (or, under the A&R agreements, with a target amount equal to 100% of base salary, which may be earned in an amount up to 200% of base salary if maximum performance goals are achieved), as determined by the compensation committee of our board of directors in its sole discretion, and subject to the executives continued employment through the bonus payment date. In addition, each is eligible to participate in the health, welfare, retirement, vacation and other employee benefit plans, practices, policies and programs generally available to other senior executives; and, under the A&R agreements, the company will pay the filing and legal fees associated with any required filings under the Hart-Scott-Rodino Act with respect to the acquisition of our securities.
Pursuant to the terms of the applicable executives employment agreement, we granted each executive an option to purchase shares of our common stock (3,420,000 shares for Ms. Hasson and 7,695,000 shares for Ms. Spear) in February 2018 at a per share exercise price equal to $0.86. Additionally, pursuant to the A&R agreements and in connection with this offering, we have approved the grant to each of Mses. Hasson and Spear equity awards with an aggregate value of $10,000,000. Please see IPO-Related Equity Award Actions for additional details. Ms. Hassons employment agreement has an eight-year term, and Ms. Spears employment agreement has a ten-year term, following which each executive will continue as an at-will employee. Under the A&R agreements, each of Mses. Hasson and Spears agreements will have a five-year term following the completion of this offering.
Pursuant to the employment agreements, if Ms. Hassons or Ms. Spears employment is terminated by us without cause or by the executive for good reason during the period beginning three months prior to and ending 12 months following a change in control (each, as defined in the applicable executives employment agreement), the executive will receive the following severance payments and benefits: (i) continued payments of base salary for 18 (or, under the A&R agreements, 24) months following the date of termination; (ii) 100% accelerated vesting and exercisability of the option granted in February 2018 and, under the A&R agreements, all equity awards granted to the executive prior to or in connection with this offering; (iii) under the A&R agreements, a lump-sum amount equal to 200% of the cost of 18 months of COBRA premiums; and (iv) under the A&R agreements, a pro-rated target bonus for the year in which the termination occurs and an amount equal to 200% of the executives target bonus for the year in which the termination occurs. If Ms. Hassons or Ms. Spears employment is terminated by us without cause or by the executive for good reason not within the change in control period described above, the executive will receive the severance payments and benefits set forth in items (i) through (iii) above. The severance payments and benefits described above are subject to the executives timely execution and non-revocation of a release of claims in our favor. Additionally, under the A&R agreements, if Ms. Hassons or Ms. Spears employment is terminated due to death or disability, the executive will receive 100% accelerated vesting (and exercisability, if applicable) of all equity awards granted to the executive prior to or in connection with this offering. Further, under the A&R agreements, if a change in control of the company occurs, Mses. Hasson and Spear will each receive 100% accelerated vesting (and exercisability, if applicable) of all outstanding equity awards granted prior to this offering (excluding, for clarity, the IPO awards).
Mses. Hasson and Spear are also subject to the terms and conditions of an employee confidential information and invention assignment agreement, a one-year post-termination non-solicitation covenant, and an indefinite mutual non-disparagement covenant.
Offer Letter with Jeffrey D. Lawrence. We entered into an offer letter with Mr. Lawrence on December 24, 2020, pursuant to which Mr. Lawrence commenced employment with us as our Chief Financial Officer on December 31, 2020. Pursuant to the offer letter, Mr. Lawrence is eligible to receive a base salary of $500,000 and
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an annual discretionary bonus equal to $500,000 as determined by our board of directors, subject to his continued employment through the bonus payment date. In addition, Mr. Lawrence is eligible to participate in our standard benefit programs.
In connection with the commencement of his employment with us, and pursuant to the offer letter, we granted Mr. Lawrence a stock option to purchase 2,047,212 shares of our common stock on December 31, 2020 at a per share exercise price equal to $6.03. Mr. Lawrences employment with us is at-will.
Pursuant to the offer letter, if Mr. Lawrences employment is terminated by us without cause or by him for good reason (and other than due to death or disability) during the 12-month period following a change in control (each, as defined in the offer letter), Mr. Lawrence will receive the following severance payments and benefits: (i) continued payment of base salary for 12 months following the date of termination, (ii) up to 12 months of company-paid COBRA continuation, (iii) a pro-rated target bonus for the year of termination, paid in a lump-sum, and (iv) 100% accelerated vesting and exercisability of the option granted in December 2020 under the offer letter. If Mr. Lawrences employment is terminated by us without cause or by him for good reason (and other than due to death or disability) not within the change in control period described above, Mr. Lawrence will receive the following severance payments and benefits: (i) continued payments of base salary for 12 months following the date of termination and (ii) up to 12 months of COBRA continuation.
The severance payments and benefits described above are subject to Mr. Lawrences timely execution and non-revocation of a release of claims in our favor. Mr. Lawrence entered into our standard employee confidential information and invention assignment agreement as a condition of his employment.
Cash Sale Bonus Letters. On February 22, 2018, we entered into cash sale bonus letter agreements with each of Mses. Hasson and Spear. Pursuant to the letter agreements, upon the occurrence of a sale of our company in which the implied equity valuation of our company is equal to or greater than $400 million and either (i) the cash consideration actually received by our stockholders is equal to or greater than $400 million or (ii) the cash consideration actually received by our stockholders is equal to or greater than $300 million and the sum of such cash consideration plus any publicly traded equity securities actually received by our stockholders is equal to or greater than $400 million, and, in either case, provided that such sale qualifies as a change in control event under Section 409A of the Code (a Qualifying Cash Sale), each executive will be eligible to earn a transaction bonus equal to $1,500,000 for Ms. Hasson and $3,750,000 for Ms. Spear, paid in a single lump sum within ten days following the Qualifying Cash Sale. Mses. Hasson and Spear need not be employed or engaged by our company on the date of the Qualifying Cash Sale in order to receive the bonus.
2016 Equity Incentive Plan
We maintain the Amended 2016 Equity Incentive Plan, or the 2016 Plan. A total of 51,716,934 shares of our Class A common stock are reserved for issuance under the 2016 Plan as of March 31, 2021. The 2016 Plan will terminate on April 28, 2026 unless earlier terminated by our board of directors. Following the effectiveness of the 2021 Plan, the 2016 Plan will terminate, and we will not make any further awards under the 2016 Plan. However, any outstanding awards granted under the 2016 Plan will remain outstanding, subject to the terms of the 2016 Plan and applicable award agreements. Shares of our common stock subject to awards granted under the 2016 Plan that expire unexercised or are cancelled, terminated or forfeited in any manner without issuance of shares thereunder following the effective date of the 2021 Plan, will become available for issuance under the 2021 Plan in accordance with its terms.
Eligibility and Administration. Employees, consultants, and directors employed or engaged by us or our affiliates are eligible to receive awards under the 2016 Plan. The 2016 Plan is administered by our board of directors, which may delegate its duties and responsibilities as it deems appropriate The board of directors has the authority to determine who will be granted awards, what type of awards will be granted and in what amount, when and how awards will be granted, the provisions of each award, and the fair market value applicable to an
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award; to construe and interpret the 2016 Plan and establish, amend, and revoke rules and regulations relating to the 2016 Plan; to settle all controversies regarding the 2016 Plan; to accelerate the vesting or exercisability of any award; to amend, suspend or terminate the 2016 Plan at any time; to submit amendments to the 2016 Plan for stockholder approval; to approve forms of award agreement for use under the 2016 Plan; to adopt any procedures or subplans necessary to permit non-U.S. participation in the 2016 Plan; to reprice outstanding awards; and to make all other determinations and take all other actions it deems necessary or expedient to promote the best interests of our company and that are not in conflict with the terms of the 2016 Plan.
Awards. The 2016 Plan provides for the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock awards. Each award under the 2016 Plan is evidenced by a separate agreement between our company and the participant, which details all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. The following types of awards have been granted under the 2016 Plan:
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Nonqualified Stock Options. Nonqualified stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. The exercise price of a stock option is fixed by the board of directors and may not be less than 100% of the fair market value of the underlying share on the date of grant. The term of a stock option is determined by our board of directors, but may not exceed ten years. Vesting conditions determined by our board of directors may apply to stock options and may include the occurrence of certain events, the passage of a specified period of time, achievement by us of certain performance goals, and/or other fulfillment of certain conditions. |
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Incentive Stock Options. Incentive stock options are designed to comply with the provisions of the Code and are subject to specified restrictions contained in the Code applicable to incentive stock options. Among such restrictions, incentive stock options must have an exercise price of not less than the fair market value of a share of common stock on the date of grant, may only be granted to employees, must expire within a specified period of time following the participants termination of employment, and must be exercised within ten years after the date of grant. In the case of an incentive stock option granted to an individual who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of our capital stock on the date of grant, the exercise price must be at least 110% of the fair market value of a share of common stock on the date of grant and the incentive stock option must expire on the fifth anniversary of the date of its grant. |
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Restricted Stock Units. Restricted stock units, or RSUs, are contractual promises to deliver shares of our common stock (or the cash equivalent thereof) in the future, which may also remain forfeitable unless and until specified conditions are met, and may be accompanied by the right to receive the equivalent value of dividends paid on shares of our common stock prior to the delivery of the underlying shares. Settlement of RSUs may be deferred under the terms of the award or at the election of the participant, if the our board of directors permits such a deferral. Vesting conditions determined by the board of directors may be applicable to RSUs and may include the occurrence of certain events, the passage of a specified period of time, achievement by us of certain performance goals, and/or other fulfillment of certain conditions. |
Certain Transactions. In the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, or a combination or other change in shares of our common stock, our board of directors shall make appropriate and proportionate adjustments to the number and type of shares subject to the 2016 Plan, the number and type of shares that may be issued pursuant to incentive stock options, and the number, type and price per share of stock subject to outstanding awards granted under the 2016 Plan. In the event of a dissolution or liquidation, all outstanding awards will terminate, provided that the board of directors may provide for accelerated vesting before such dissolution or liquidation and contingent on its completion. In the event of a corporate transaction, the board of directors may take one or more of the following actions, contingent upon the closing of such corporate transaction: (i) arrange for the assumption, continuation, or substitution of the awards by the surviving corporation; (ii) arrange for the assignment of any reacquisition or repurchase rights to the
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surviving corporation; (iii) accelerate the vesting and exercisability of any award; (iv) arrange for the lapse of any reacquisition or repurchase rights; (v) cancel any award to the extent not vested or exercised prior to the corporate transaction in exchange for cash consideration; and (vi) make a payment equal to the excess of the value that a participant would have received upon exercise immediately prior to the corporate transaction over any exercise price payable upon exercise. In the event of a change in control, no acceleration of vesting or exercisability will occur unless provided in an award agreement or other written agreement.
Plan Amendment and Termination. Our board of directors may suspend or terminate the 2016 Plan or any portion thereof at any time and may amend it from time to time in such respects as our board of directors may deem necessary or advisable, provided that no such amendment shall be made without stockholder approval to the extent such approval is required by applicable law. Further, no such amendment, suspension or termination shall impair the rights of participants under outstanding awards without the consent of the affected participants. As described above, the 2016 Plan will terminate as of the effective date of the 2021 Plan.
2021 Equity Incentive Plan
In connection with this offering, our board of directors adopted, and our stockholders approved, the 2021 Equity Incentive Plan, or the 2021 Plan, under which we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. The material terms of the 2021 Plan are summarized below.
Eligibility and Administration. Our employees, consultants and directors, and employees, consultants and directors of our subsidiaries, will be eligible to receive awards under the 2021 Plan. Following this offering, the 2021 Plan will be administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (referred to collectively as the plan administrator below), subject to certain limitations that may be imposed under Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and/or stock exchange rules, as applicable. The plan administrator will have the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the 2021 Plan, subject to its express terms and conditions. The plan administrator will also set the terms and conditions of all awards under the 2021 Plan, including any vesting and vesting acceleration conditions.
Limitation on Awards and Shares Available. Subject to the adjustment described in the following sentence, an aggregate of 5,000,000 shares of our Class A common stock are available for issuance under awards granted pursuant to the 2021 Plan, which shares may be authorized but unissued shares, treasury shares or shares purchased in the open market. This initial share reserve may be adjusted upwards to a number of shares of common stock equal to 5% of the number of shares of our outstanding Class A common stock and Class B common stock upon completion of this offering on a fully diluted basis (i.e., including shares underlying equity awards granted under the 2016 Plan). Notwithstanding anything to the contrary in the 2021 Plan, no more than 100,000,000 shares of our common stock may be issued pursuant to the exercise of incentive stock options under the 2021 Plan.
The number of shares available for issuance will be increased by (i) the number of shares available under the 2016 Plan as of the effective date of the 2021 Plan or represented by awards outstanding under our 2016 Plan that expire, lapse or are terminated, exchanged for or settled in cash, surrendered, repurchased, cancelled without having been fully experienced or forfeited following the effective date of the 2021 Plan, with the maximum number of shares to be added to the 2021 Plan equal to 49,721,292 shares, and (ii) an annual increase on the first day of each calendar year beginning January 1, 2022 and ending on and including January 1, 2031, equal to the lesser of (A) 5% of the aggregate number of shares of our Class A and Class B common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares as is determined by our board of directors.
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If an award under the 2021 Plan or 2016 Plan expires, lapses or is terminated, exchanged for or settled for cash, surrendered, repurchased, cancelled without having been fully exercised or forfeited, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2021 Plan. Further, shares delivered to us to satisfy the applicable exercise or purchase price of an award under the 2021 Plan or the 2016 Plan and/or to satisfy any applicable tax withholding obligations (including shares retained by us from the award under the 2021 Plan or the 2016 Plan being exercised or purchased and/or creating the tax obligation) will become or again be available for award grants under the 2021 Plan. The payment of dividend equivalents in cash in conjunction with any awards under the 2021 Plan will not reduce the shares available for grant under the 2021 Plan. However, the following shares may not be used again for grant under the 2021 Plan: (i) shares subject to stock appreciation rights, or SARs, that are not issued in connection with the stock settlement of the SAR on exercise, and (ii) shares purchased on the open market with the cash proceeds from the exercise of options.
Awards granted under the 2021 Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction will not reduce the shares available for grant under the 2021 Plan. The 2021 Plan provides that, commencing with the calendar year following the calendar year in which the effective date of the 2021 Plan occurs, the sum of any cash compensation and the aggregate grant date fair value (determined as of the date of the grant under ASC Topic 718, or any successor thereto) of all awards granted to a non-employee director as compensation for services as a non-employee director during any calendar year may not exceed the amount equal to $700,000.
Awards. The 2021 Plan provides for the grant of stock options, including incentive stock options, or ISOs, and nonqualified stock options, or NSOs, restricted stock, dividend equivalents, RSUs, stock appreciation rights, or SARs, and other stock or cash awards. Certain awards under the 2021 Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the 2021 Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards generally will be settled in shares of our common stock, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.
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Stock Options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. ISOs, by contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions. |
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SARs. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR may not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions. |
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Restricted Stock and RSUs. Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified conditions are met, and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of our common stock in the future, |
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which may also remain forfeitable unless and until specified conditions are met, and may be accompanied by the right to receive the equivalent value of dividends paid on shares of our common stock prior to the delivery of the underlying shares. Settlement of RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. Conditions applicable to restricted stock and RSUs may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine. |
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Other Stock or Cash Based Awards. Other stock or cash based awards of cash, fully vested shares of our common stock and other awards valued wholly or partially by referring to, or otherwise based on, shares of our common stock may be granted under the 2021 Plan. Other stock or cash based awards may be granted to participants and may also be available as a payment form in the settlement of other awards, as standalone payments and as payment in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. |
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Dividend Equivalents. Dividend equivalents represent the right to receive the equivalent value of dividends paid on shares of our common stock and may be granted alone or in tandem with awards other than stock options or SARs. Dividend equivalents are credited as of dividend record dates during the period between the date an award is granted and the date such award vests, is exercised, is distributed or expires, as determined by the plan administrator. |
Performance Awards. Performance awards include any of the foregoing awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals or other criteria the plan administrator may determine, which may or may not be objectively determinable. Performance criteria upon which performance goals are established by the plan administrator may include but are not limited to: (1) net earnings (either before or after one or more of the following: (a) interest, (b) taxes, (c) depreciation, (d) amortization and (e) non-cash equity-based compensation expense); (2) gross or net sales or revenue; (3) net income (either before or after taxes); (4) adjusted net income; (5) operating earnings or profit; (6) cash flow (including, but not limited to, operating cash flow and free cash flow); (7) return on assets; (8) return on capital; (9) return on stockholders equity; (10) total stockholder return; (11) return on sales; (12) gross or net profit or operating margin; (13) costs; (14) funds from operations; (15) expenses; (16) working capital; (17) earnings per share; (18) adjusted earnings per share; (19) price per share of our common stock; (20) regulatory achievements or compliance; (21) implementation or completion of critical projects; (22) market share; (23) economic value; (24) debt levels or reduction; (25) sales-related goals; (26) comparisons with other stock market indices; (27) operating efficiency; (28) employee satisfaction; (29) financing and other capital raising transactions; (30) recruiting and maintaining personnel; (31) year-end cash; and (32) human capital management goals or environmental, social and governance goals, any of which may be measured either in absolute terms for us or any operating unit of our company or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.
Certain Transactions. The plan administrator has broad discretion to take action under the 2021 Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our stockholders known as equity restructurings, the plan administrator will make equitable adjustments to the 2021 Plan and outstanding awards. In the event of a change in control of our company (as defined in the 2021 Plan), to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then all such awards will become fully vested and exercisable in connection with the transaction. Upon or in anticipation of a change of control, the plan administrator may cause any outstanding awards to terminate at a specified time in the future and give the participant the right to exercise such awards during a period of time determined by the plan administrator in its sole discretion. Individual award agreements may provide for additional accelerated vesting and payment provisions.
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Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments. The plan administrator may modify award terms, establish subplans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by our company to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the 2021 Plan are generally non-transferable prior to vesting, and are exercisable only by the participant. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the 2021 Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock that meet specified conditions, a market sell order or such other consideration as it deems suitable.
Plan Amendment and Termination. Our board of directors may amend or terminate the 2021 Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the 2021 Plan. Stockholder approval is not required for any amendment that reprices any stock option or SAR, or cancels any stock option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares. No award may be granted pursuant to the 2021 Plan after the tenth anniversary of the earlier of the date on which our stockholders approved the 2021 Plan or the date on which our board of directors adopted the 2021 Plan.
2021 Employee Stock Purchase Plan
In connection with this offering, our board of directors adopted, and our stockholders approved, the 2021 Employee Stock Purchase Plan, or ESPP. The material terms of the ESPP are summarized below.
Shares Available; Administration. The initial share reserve under the ESPP will equal 1% of the shares of our outstanding Class A and Class B common stock upon the completion of this offering, which we expect will be equal to 2,060,000 shares of Class A common stock. In addition, we expect that the number of shares available for issuance under the ESPP will be annually increased on January 1 of each calendar year beginning in 2022 and ending in 2031, by an amount equal to the lesser of: (i) 1% of the aggregate number of shares of our Class A and Class B common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares as is determined by our board of directors. In no event will more than 50,000,000 shares of our common stock be available for issuance under the ESPP.
Our board of directors or a committee designated by our board of directors will have authority to interpret the terms of the ESPP and determine eligibility of participants. The compensation committee will be the administrator of the ESPP.
Eligibility. The plan administrator may designate certain of our subsidiaries as participating designated subsidiaries in the ESPP and may change these designations from time to time. Employees of our company and our designated subsidiaries are eligible to participate in the ESPP if they meet the eligibility requirements under the ESPP established from time to time by the plan administrator. However, an employee may not be granted rights to purchase stock under the ESPP if such employee, immediately after the grant, would own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common or other class of stock.
If the grant of a purchase right under the ESPP to any eligible employee who is a citizen or resident of a foreign jurisdiction would be prohibited under the laws of such foreign jurisdiction or the grant of a purchase right to such employee in compliance with the laws of such foreign jurisdiction would cause the ESPP to violate the requirements of Section 423 of the Code, as determined by the plan administrator in its sole discretion, such employee will not be permitted to participate in the ESPP.
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Eligible employees become participants in the ESPP by enrolling and authorizing payroll deductions by the deadline established by the plan administrator prior to the relevant offering date. Directors who are not employees, as well as consultants, are not eligible to participate. Employees who choose to not participate, or are not eligible to participate at the start of an offering period but who become eligible thereafter, may enroll in any subsequent offering period.
Participation in an Offering. We intend for the ESPP to qualify under Section 423 of the Code and stock will be offered under the ESPP during offering periods. The length of offering periods under the ESPP will be determined by the plan administrator and may be up to 27 months long. Employee payroll deductions will be used to purchase shares on each purchase date during an offering period. The number of purchase periods within, and purchase dates during, each offering period will be established by the plan administrator. Offering periods under the ESPP will commence when determined by the plan administrator. The plan administrator may, in its discretion, modify the terms of future offering periods.
The ESPP will permit participants to purchase our common stock through payroll deductions of up to 20% of their eligible compensation, unless otherwise determined by the plan administrator, which will include a participants gross base compensation for services to us, including overtime payments, periodic bonuses, and sales commissions, and excluding one-time bonuses, expense reimbursements, fringe benefits and other special payments. The plan administrator will establish a maximum number of shares that may be purchased by a participant during any offering period or purchase period, which, in the absence of a contrary designation, will be 10,000 shares for an offering period and/or a purchase period. In addition, no employee will be permitted to accrue the right to purchase stock under the ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of our common stock as of the first day of the offering period).
On the first trading day of each offering period, each participant automatically will be granted an option to purchase shares of our common stock. The option will be exercised on the applicable purchase date(s) during the offering period, to the extent of the payroll deductions accumulated during the applicable purchase period. The purchase price of the shares, in the absence of a contrary determination by the plan administrator, will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the applicable purchase date, which will be the final trading day of the applicable purchase period.
Participants may voluntarily end their participation in the ESPP at any time at least two weeks prior to the end of the applicable offering period (or such longer or shorter period specified by the plan administrator), and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon a participants termination of employment.
Transferability. A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided in the ESPP.
Certain Transactions. In the event of certain transactions or events affecting our common stock, such as any stock dividend or other distribution, change in control, reorganization, merger, consolidation or other corporate transaction, the plan administrator will make equitable adjustments to the ESPP and outstanding rights. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control, the plan administrator may provide for (i) either the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (ii) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, (iii) the adjustment in the number and type of shares of stock subject to outstanding rights, (iv) the use of participants accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods or (v) the termination of all outstanding rights. Under the ESPP, a change in control has the same definition as given to such term in the 2021 Plan.
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Plan Amendment; Termination. The plan administrator may amend, suspend or terminate the ESPP at any time. However, stockholder approval of any amendment to the ESPP must be obtained for any amendment which increases the aggregate number or changes the type of shares that may be sold pursuant to rights under the ESPP, changes the ESPP in any manner that would be considered the adoption of a new plan within the meaning of Treasury regulation Section 1.423-2(c)(4), or changes the ESPP in any manner that would cause the ESPP to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In addition to the compensation arrangements discussed in the sections titled Management and Executive Compensation, the following is a description of each transaction since January 1, 2018 and each currently proposed transaction in which:
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we have been or are to be a participant; |
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the amount involved exceeds or will exceed $120,000; and |
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any of our director nominees, directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest. |
Transactions with Tulco, LLC
Promissory Note
On February 22, 2018, we issued a $2.5 million promissory note to Tulco, LLC, a holder of greater than 5% of our capital stock and our majority stockholder, which promissory note was cancelled in connection with our common stock financing with Tulco, LLC in May 2018.
Common Stock Purchase Agreement
On May 14, 2018, we entered into a common stock purchase agreement with Tulco, LLC, pursuant to which we issued and sold to Tulco, LLC an aggregate of 36,675,000 shares of our common stock for an initial aggregate purchase price of $20.0 million, comprised of $17.5 million in cash and the cancellation of the $2.5 million promissory note. Under the agreement, Tulco, LLC also agreed to pay us an aggregate of $30.0 million in additional milestone payments based on our achievement of certain net revenues targets. Following entry into this agreement, we achieved all milestones and, as a result, have received an aggregate of $50.0 million in consideration from Tulco, LLC under this agreement.
Purchase Order Agreement
On June 15, 2020, we entered into a purchase order agreement with Tulco, LLC, pursuant to which Tulco, LLC purchased from us 100,000 isolation gowns and 10,000 masks for an aggregate purchase price of $4.2 million. We then facilitated the donation of the products to Albert Einstein Medical Center in Philadelphia, Pennsylvania, East Boston Neighborhood Health Center in East Boston, Massachusetts, Grady Health System in Atlanta, Georgia and the Alaska Native Tribal Health Consortium in Anchorage, Alaska.
Professional Fees
In connection with the preparation of our 2017 and 2018 audits, Tulco, LLC paid an aggregate of $257,000 of our audit and tax preparation fees, $136,000 of which were repaid to Tulco, LLC by us.
Stockholders Agreement
In connection with a secondary sale of an aggregate of 57,046,824 shares of our common stock at a price per share of approximately $8.55, in which certain of our holders of our common stock participated, including, but not limited to, Tulco, LLC, Ms. Hasson and Ms. Spear, on October 23, 2020, we entered into an amended and restated stockholders agreement with certain holders of our common stock, including, but not limited to, Ms. Hasson, Ms. Spear, Tulco, LLC, Viking Global Opportunities Illiquid Investments Sub-Master LP and Commonwealth of Pennsylvania, Public School Employees Retirement System, pursuant to which these holders are entitled to certain rights relating to the registration of their shares following this offering. See Description of Capital StockRegistration Rights for additional information.
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Voting Agreement
We, our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, Tulco, LLC, and certain related persons and entities will enter into a voting agreement, effective immediately prior to the completion of this offering, under which such parties will agree, following the offering and upon the terms set forth in the voting agreement, to vote their shares for the election of each of Ms. Hasson, Ms. Spear and, for so long as Tulco, LLC and its permitted transferees hold, in the aggregate, at least 10% of the total number of outstanding shares of all classes of our common stock (calculated on a diluted basis to include any issued and outstanding options, RSUs or other equity awards, whether vested or unvested), an individual designated by Tulco, LLC to our board of directors, and to vote against their removal. See Description of Capital StockVoting Agreement for additional information.
Exchange Transactions
To facilitate the Common Stock Reclassification and Exchange, we will enter into an exchange agreement with our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, Tulco, LLC and certain related entities pursuant to which an aggregate of 6,710,315 shares of Class A common stock held by Ms. Hasson and Ms. Spear and 5,426,000 shares of Class A common stock held by Tulco, LLC (which number is based on the anticipated terms of this offering and will be adjusted to a number of shares that results in Tulco, LLC holding 45% of the voting power of our outstanding capital stock immediately following this offering and taking into account any exercise of the underwriters option to purchase additional shares) will be exchanged into an equivalent number of shares of Class B common stock in connection with the completion of this offering.
In addition, following the completion of this offering, and pursuant to the Equity Award Exchange Agreement to be entered into between us and our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, each of Ms. Hasson and Ms. Spear shall have a right to require us to exchange any shares of Class A common stock received upon the exercise of stock options or the vesting and settlement of RSUs, in each case granted under our 2016 Plan and outstanding prior to the date of effectiveness of the registration statement of which this prospectus forms a part, for an equivalent number of shares of Class B common stock. This includes an aggregate of 33,387,120 shares underlying outstanding options and an aggregate of 3,719,682 shares underlying outstanding RSUs held by Ms. Hasson and Ms. Spear, after giving effect to the RSU Net Settlement. The Equity Award Exchange Agreement does not cover any equity awards granted to Ms. Hasson or Ms. Spear in connection with or following the completion of this offering.
Employment and Compensation Arrangements
We have entered into, or plan on entering into, employment agreements with and have granted equity awards to our executive officers. In addition, we have entered into a cash sale bonus agreement with each of our co-founders and co-Chief Executive Officers, Ms. Spear and Ms. Hasson. See the section titled Executive CompensationExecutive Compensation Arrangements for additional information.
Indemnification Agreements
We have entered into, and plan on entering into, indemnification agreements with each of our directors and executive officers. See the section titled Description of Capital StockLimitations on Liability and Indemnification Matters.
Directed Share Program
At our request, the underwriters have reserved for sale at the initial public offering price per share up to 5.0% of the shares of Class A common stock offered by this prospectus for sale at the initial public offering price through a directed share program to certain individuals identified by management. See the section titled UnderwritingDirected Share Program.
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Policies and Procedures for Transactions with Related Persons
Our board of directors has adopted a written related person transaction policy, to be effective upon the completion of this offering, setting forth the policies and procedures for the review and approval or ratification of related person transactions. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arms length transaction and the extent of the related persons interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents certain information with respect to the beneficial ownership of our common stock as of March 31, 2021, and as adjusted to reflect the sale of Class A common stock offered by us and the selling stockholder in this offering, assuming no exercise of the underwriters option to purchase additional shares of our Class A common stock, by:
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each of our directors and director nominees; |
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each of our named executive officers; |
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all of our directors and executive officers as a group; |
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each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Class A common stock or Class B common stock; and |
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the selling stockholder. |
We have determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated below, to our knowledge, based on information furnished to us, the persons and entities named in the table have sole voting and investment power with respect to all shares that they beneficially own, subject to applicable community property laws. Shares of our Class A common stock subject to stock options that are currently exercisable or exercisable within 60 days of March 31, 2021 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
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We have based our calculation of the percentage ownership of our common stock before this offering on 155,511,446 shares of our common stock outstanding on March 31, 2021, after giving effect to (1) a 9-for-1 forward stock split of our common stock effected on May 19, 2021, (2) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, (3) the RSU Net Settlement, (4) the Common Stock Reclassification and Exchange and (5) the reclassification of all shares of common stock underlying outstanding equity awards under our 2016 Plan into shares of Class A common stock, as if each had occurred as of March 31, 2021. Percentage ownership of our common stock after this offering also assumes the sale by us and the selling stockholder of shares of our Class A common stock in this offering. The table below excludes any purchases that may be made through our directed share program or otherwise in this offering. See UnderwritingDirected Share Program. Unless otherwise indicated, the address of each beneficial owner in the table below is c/o FIGS, Inc., 2834 Colorado Avenue, Suite 100, Santa Monica, California 90404.
Name of Beneficial Owner |
Shares Beneficially Owned Before
this Offering |
% Total
Voting Power Before this Offering(1) |
Number of
Shares Being Offered |
Shares Beneficially Owned After
this Offering |
% Total
Voting Power After this Offering(1) |
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Class A | Class B | Class A | Class B | |||||||||||||||||||||||||||||||||||||||||
Shares | % | Shares | % | Shares | % | Shares | % | |||||||||||||||||||||||||||||||||||||
5% Stockholders: |
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Tulco, LLC(2) |
84,649,555 | 59.0 | 5,426,000 | 44.7 | 50.0 | 16,625,000 | 68,024,555 | 45.6 | 5,426,000 | 44.7 | 45.0 | |||||||||||||||||||||||||||||||||
Viking Global Opportunities Illiquid Investments Sub-Master LP(3) |
10,984,734 | 7.7 | | | 2.8 | | 10,984,734 | 7.4 | | | 2.8 | |||||||||||||||||||||||||||||||||
Commonwealth of Pennsylvania, Public School Employees Retirement System(4) |
9,943,587 | 6.9 | | | 2.6 | | 9,943,587 | 6.7 | | | 2.5 | |||||||||||||||||||||||||||||||||
Named Executive Officers, Directors and Director Nominees: |
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Heather Hasson(5) |
5,328,552 | 3.6 | 1,373,596 | 11.3 | 8.4 | | 14,556,060 | 8.9 | 1,373,596 | 11.3 | 10.3 | |||||||||||||||||||||||||||||||||
Catherine Spear(6) |
9,158,238 | 6.0 | 5,336,719 | 44.0 | 29.3 | | 9,158,238 | 5.8 | 5,336,719 | 44.0 | 28.9 | |||||||||||||||||||||||||||||||||
Jeffrey D. Lawrence |
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J. Martin Willhite(2) |
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Sheila Antrum |
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Michael Soenen |
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Christopher Varelas |
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All executive officers and directors as a group (Four persons)(7) |
14,486,790 | 9.2 | 6,710,315 | 55.3 | 37.1 | | 23,714,298 | 13.7 | 6,710,316 | 55.3 | 38.0 |
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Represents beneficial ownership of less than 1% of our outstanding shares of common stock. |
(1) |
Percentage of total voting power represents voting power with respect to all shares of our Class A common stock and Class B common stock, as a single class. The holders of our Class B common stock are entitled to 20 votes per share and holders of our Class A common stock are entitled to one vote per share. See the section titled Description of Capital StockCommon Stock for more information about the voting rights of our Class A common stock and Class B common stock. |
(2) |
Thomas J. Tull, founder, Chairman and Chief Executive Officer of Tulco, LLC and a member of its board of directors, may control Tulco, LLC. Mr. Tull may be deemed to have or share beneficial ownership of the Class A and Class B common stock held directly by Tulco, LLC. J. Martin Willhite, a member of our board of directors, is Vice Chairman of Tulco, LLC and a member of its board of directors. The mailing address of Tulco, LLC and Messrs. Tull and Willhite is 61 E. Colorado Blvd., Unit 200, Pasadena, CA 91105. |
(3) |
Viking Global Opportunities Illiquid Investments Sub-Master LP (the Opportunities Fund) has the authority to dispose of and vote the Class A common stock directly owned by it, which power may be exercised by its general partner, Viking Global Opportunities Portfolio GP LLC (Opportunities GP), and by Viking Global Investors LP (VGI), which provides managerial services to Opportunities Fund. O. Andreas Halvorsen, David C. Ott and Rose Shabet, as Executive Committee members of Viking Global Partners LLC (the general partner of VGI) and Viking Global Opportunities GP LLC, the sole member of Opportunities GP, have shared authority to direct the voting and disposition of investments beneficially owned by VGI, Opportunities GP and the Opportunities Fund. The address of each of the entities is c/o Viking Global Investors LP, 55 Railroad Avenue, Greenwich, Connecticut 06830. |
(4) |
James H. Grossman, Jr., the Authorized Person for the Commonwealth of Pennsylvania, Public School Employees Retirement System, holds voting and investment power over the shares of Class A common stock held by the Commonwealth of Pennsylvania, Public School Employees Retirement System. The address of Commonwealth of Pennsylvania, Public School Employees Retirement System is 5 North Fifth Street, Harrisburg, Pennsylvania 17101. |
(5) |
Consists of (a) 942,453 shares of Class B common stock held by the Maple Tree Irrevocable Trust, (b) 431,143 shares of Class B common stock issuable upon the RSU Net Settlement and the Common Stock Reclassification and Exchange, (c) 5,328,552 shares of Class A common stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2021 and (d) for shares beneficially owed after this offering, 9,227,508 shares of Class A common stock issuable pursuant to options that vest upon the effectiveness of the registration statement of which this prospectus forms a part. Assuming the exchange of all of Ms. Hassons options vested within 60 days of March 31, 2021 pursuant to the Equity Award Exchange Agreement, Ms. Hasson would have total voting power after this offering of 46.6%. |
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(6) |
Consists of (a) 2,300,076 shares of Class B common stock held by the Catherine Spear Revocable Trust, (b) 1,302,750 shares of Class B common stock held by the Wingaersheek Irrevocable Trust I, (c) 1,302,750 shares of Class B common stock held by the Wingaersheek Irrevocable Trust II, (d) 431,143 shares of Class B common stock issuable upon the RSU Net Settlement and the Common Stock Reclassification and Exchange, and (e) 9,158,238 shares of Class A common stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2021. Assuming the exchange of all of Ms. Spears options vested within 60 days of March 31, 2021 pursuant to the Equity Award Exchange Agreement, Ms. Spear would have total voting power after this offering of 50.4%. |
(7) |
Consists of (a) 5,848,029 shares of Class B common stock, (b) 862,286 shares of Class B common stock issuable upon the RSU Net Settlement and Exchange, (c) 14,486,790 shares of Class A common stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2021, and (d) for shares beneficially owned after this offering, 9,227,508 shares of Class A common stock issuable pursuant to options that vest upon the effectiveness of the registration statement of which this prospectus forms a part. Assuming the exchange of all of Mses. Hassons and Spears options vested within 60 days of March 31, 2021 pursuant to the Equity Award Exchange Agreement, Mses. Hasson and Spear would have total voting power after this offering of 70.2%. |
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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 an amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective immediately prior to completion of this offering, and this description summarizes provisions that are expected to be included in these documents. For a complete description of the information contained in this section, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated stockholders agreement, each of which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.
General
Upon the completion of this offering, our authorized capital stock will consist of 1,000,000,000 shares of our Class A common stock and 150,000,000 shares of our Class B common stock, in each case, $0.0001 par value per share, and 100,000,000 shares of undesignated preferred stock, $0.0001 par value per share.
As of March 31, 2021, assuming (1) the RSU Net Settlement, (2) the filing and effectiveness of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering, and (3) the Common Stock Reclassification and Exchange, there were outstanding:
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143,375,131 shares of our Class A common stock, held by approximately 55 stockholders of record; and |
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12,136,315 shares of our Class B common stock, held by four stockholders of record. |
Common Stock
Upon the completion of this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of each class of our common stock are identical, except with respect to voting and conversion rights.
Dividend Rights
Subject to preferences that may apply to any shares of 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 for additional information.
Voting Rights
Holders of our Class A common stock are entitled to one vote for each share of Class A common stock held on all matters submitted to a vote of stockholders. Holders of our Class B common stock are entitled to 20 votes for each share of Class B common stock held on all matters submitted to a vote of stockholders.
Immediately following the completion of this offering, all outstanding shares of our Class B common stock will be held by our co-founders and co-Chief Executive Officers, Heather Hasson and Trina Spear, and Tulco, LLC, our majority stockholder. Immediately following the completion of this offering, these holders will represent approximately 79.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters option to purchase additional shares.
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Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless otherwise required by Delaware law or our amended and restated certificate of incorporation. Delaware law could require either holders of our Class A common stock or Class B common stock to vote separately as a single class in the following circumstances:
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if we were to seek to amend our amended and restated certificate of incorporation to increase or decrease the par value of a class of our capital stock, then that class would be required to vote separately to approve the proposed amendment; and |
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if we were to seek to amend our amended and restated certificate of incorporation in a manner that alters or changes the powers, preferences or special rights of a class of our capital stock in a manner that affected its holders adversely, then that class would be required to vote separately to approve the proposed amendment. |
Our amended and restated certificate of incorporation does not provide for cumulative voting for the election of directors. As a result, the holders of a majority of our voting shares can elect all of the directors then standing for election. Our amended and 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
None of our common stock is entitled to preemptive rights or 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 preferred stock outstanding at that time, subject to the prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any shares of preferred stock outstanding at that time.
Change of Control Transactions
In the case of any distribution or payment in respect of the shares of our Class A common stock or Class B common stock upon a merger or consolidation with or into any other entity, or other substantially similar transaction, the holders of our Class A common stock and Class B common stock will be treated equally and identically with respect to shares of Class A common stock or Class B common stock owned by them, unless the only difference in the per share distribution to the holders of the Class A common stock and Class B common stock is that any securities distributed to the holder of a share of Class B common stock have 20 times the voting power of any securities distributed to the holder of a share of Class A common stock, or such merger, consolidation or other transaction is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting as a separate class.
Subdivisions and Combinations
If we subdivide or combine in any manner outstanding shares of Class A common stock or Class B common stock, the outstanding shares of the other class will be subdivided or combined in the same manner, unless different treatment of the shares of each class is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock, each voting as a separate class.
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Conversion
Each outstanding share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, whether or not for value, which occurs after the completion of this offering, except for certain permitted transfers described in our amended and restated certificate of incorporation, including transfers for estate planning purposes or charitable transfers where voting control is retained by the transferring holder or transfers to affiliates or certain other related entities of the transferring holder. Once converted or transferred and converted into Class A common stock, the Class B common stock may not be reissued.
All outstanding shares of our Class B common stock will convert automatically into shares of our Class A common stock upon the earlier of (1) the date fixed by our board of directors that is not less than 60 days or more than 180 days following the death or disability of both Ms. Hasson and Ms. Spear and (2) the 10-year anniversary of the date of the closing of this offering, each of which we refer to as a final conversion event. In addition, if prior to a final conversion event Tulco, LLC and its permitted transferees cease to hold at least 20% of the aggregate number of shares of all classes of common stock then outstanding (calculated on a diluted basis to include any issued and outstanding stock options, RSUs or other equity awards, whether vested or unvested), then any shares of Class B common stock then held by Tulco, LLC and its permitted transferees will convert automatically into shares of our Class A common stock on a date fixed by our board of directors that is not less than 60 days or more than 180 days following such occurrence. Once converted into Class A common stock, the Class B common stock may not be reissued.
Upon the conversion of all shares of Class B common stock into shares of Class A common stock, the rights of the holders of all outstanding common stock will be identical.
Preferred Stock
Following the completion of this offering, and pursuant to the provisions of our amended and restated certificate of incorporation that will be in effect thereafter, 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 control of our company and might adversely affect the market price of our Class A common stock and the voting and other rights of the holders of our Class A common stock and Class B common stock. We have no current plans to issue any shares of preferred stock.
Stock Options
As of March 31, 2021, we had outstanding options to purchase an aggregate of 40,272,111 shares of our Class A common stock under our 2016 Plan, with a weighted-average exercise price of $3.67 per share, assuming the reclassification of all shares of common stock underlying outstanding options under our 2016 Plan into shares of Class A common stock, including 33,387,120 shares underlying stock option awards that are subject to the Equity Award Exchange Agreement.
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RSUs
As of March 31, 2021, 5,410,440 shares of our Class A common stock were subject to RSUs under our 2016 Plan, assuming the reclassification of all shares of common stock underlying outstanding RSUs under our 2016 Plan into shares of Class A common stock, all of which are subject to the Equity Award Exchange Agreement.
Voting Agreement
We, our co-founders and co-Chief Executive Officers, Ms. Hasson and Ms. Spear, and Tulco, LLC, and certain related persons and entities will enter into a voting agreement, effective immediately prior to the completion of this offering, under which such parties will agree, following the offering and upon the terms set forth in the voting agreement, to vote their shares for the election of each of Ms. Hasson, Ms. Spear and for so long as Tulco, LLC and its permitted transferees hold, in the aggregate, at least 10% of the total number of outstanding shares of all classes of our common stock (calculated on a diluted basis to include any issued and outstanding options, RSUs or other equity awards, whether vested or unvested), an individual designated by Tulco, LLC to our board of directors, and to vote against their removal. The voting agreement will be in effect until: (1) the time at which neither of the co-founders nor any of their permitted transferees hold shares of Class B common stock, (2) with respect to Tulco, LLC, the time at which Tulco, LLC and its permitted transferees cease to hold, in the aggregate, at least 10% of the total number of outstanding shares of all classes of our common stock (calculated on a diluted basis to include any issued and outstanding options, restricted stock units or other equity awards, whether vested or unvested) or (3) a final conversion event. The conversion of our Class B common stock to Class A common stock is provided for in our amended and restated certificate of incorporation, see section titled Common StockConversion.
Registration Rights
Following the completion of this offering, subject to the lock-up agreements entered into in connection with this offering, the holders of 136,614,810 outstanding shares of our common stock, 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 our amended and restated stockholders agreement between us and the holders of these shares, which was entered into in October 2020, and include demand registration rights, Form S-3 registration rights and piggyback registration rights. The registration of shares of our common stock by the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. Our amended and restated stockholders agreement does not provide for any maximum cash penalties or any penalties connected with delays in registering our common stock.
In any registration made pursuant to such amended and restated stockholders agreement, all fees, costs, and expenses of underwritten registrations, including reasonable fees and disbursements not to exceed $50,000 of one special counsel to the selling stockholders, will be borne by us and all selling expenses, including the estimated underwriting discounts and commissions, will be borne by the holders of the shares being registered. However, we will not be required to bear the expenses in connection with the exercise of the requested and Form S-3 registration rights of a registration if the request is subsequently withdrawn at the request of the selling stockholders holding a majority of registrable securities to be registered, unless such holders agree to forfeit their right to either one demand registration or one Form S-3 registration.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. The registration rights terminate upon the earliest of: (1) three years following the completion of this offering, (2) as to any given holder of registration rights, at such time following this offering when such holder of registration rights can sell all of such holders registrable securities in compliance with Rule 144(b)(1)(i) and all registrable securities held by such holder can be sold in any three-month period without registration pursuant to Rule 144 under the Securities Act and (3) a transaction or series of related transactions (whether by merger, consolidation, share transfer, new issuance of
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voting securities, as defined in the amended and restated stockholders agreement, or otherwise) in which a person as defined in the amended and restated stockholders agreement, acquires, directly or indirectly, (i) a majority of the voting power of our company (or the surviving or acquiring entity) or (ii) all or substantially all of the assets of our company and its direct and indirect subsidiaries (on a consolidated basis).
Demand Registration Rights
The holders of an aggregate of 136,614,810 shares of our common stock following this offering, or their permitted transferees, are entitled to demand registration rights. Under the terms of the amended and restated stockholders agreement, at any time after 180 days following the effective date of this prospectus, holders of at least 35% of the voting securities (as defined in the amended and restated stockholders agreement) then-outstanding can request that we register the offer and sale of their shares on a registration statement on Form S-1 under the Securities Act with an anticipated aggregate offering price, net of selling expenses, of at least $25.0 million. We are required to effect only one registration pursuant to this provision of the amended and restated stockholders agreement. We may postpone the filing of a registration statement no more than once during any 12-month period for up to 90 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a requested registration under certain additional circumstances specified in the amended and restated stockholders agreement.
Form S-3 Registration Rights
The holders of an aggregate of 136,614,810 shares of our common stock following this offering or their permitted transferees are also entitled to Form S-3 registration rights. If we are eligible and qualified to file a registration statement on Form S-3, holders can request that we register the offer and sale of all or part of their shares on a registration statement on Form S-3 with an anticipated aggregate offering price, net of selling expenses, of at least $10.0 million. We are required 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 on Form S-3 no more than once during any 12-month period for up to 90 days if our board of directors determines that the filing would be detrimental to us and our stockholders. We are not required to effect a registration on Form S-3 under certain additional circumstances specified in the amended and restated stockholders agreement.
Piggyback Registration Rights
If we register any of our common stock for public sale, the holders of an aggregate of 136,614,810 shares of our common stock following this offering or their permitted transferees are entitled to piggyback registration rights. However, this right does not apply to (1) a registration relating to the sale or grant of securities to our employees pursuant to a stock option, stock purchase, equity incentive or similar plan; (2) a registration relating to an SEC Rule 145 transaction; (3) 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 voting securities, as defined in the amended and restated stockholders agreement; or (4) 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, in their sole discretion, to limit, because of marketing reasons, the number of shares registered by these holders, in which case the number of shares to be registered will be apportioned, first, to us, and second, pro rata among these holders, according to the total amount of securities entitled to be included by each holder, subject to additional circumstances specified in the amended and restated stockholders agreement.
Anti-Takeover Provisions
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of
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delaying, deferring, or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first 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.
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, regulating corporate takeovers. In general, DGCL Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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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, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporations outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that DGCL Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws Provisions
Our amended and restated certificate of incorporation and our amended and restated bylaws will include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our management team, including the following:
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Dual-Class Common Stock. As described above in the section titled Common StockVoting Rights, our amended and restated certificate of incorporation will provide for a dual-class common stock structure pursuant to which holders of our Class B common stock will have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of all outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets. Current investors, executives and employees will have the ability to exercise significant influence over those matters. |
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Board of Directors Vacancies. Our amended and restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly |
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created seats. In addition, the number of directors constituting our board of directors is permitted to be set only by a resolution adopted by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management. |
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Classified Board. Our amended and restated certificate of incorporation and amended and restated bylaws will provide that our board of directors will be classified into three classes of directors. The existence of a classified board of directors could discourage a third party from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors. See the section titled ManagementBoard of Directors Composition for additional information. |
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Directors Removed Only for Cause. Our amended and restated certificate of incorporation will provide that stockholders may remove directors only for cause. |
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Supermajority Requirements for Amendments of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. Our amended and restated certificate of incorporation will further provide that the affirmative vote of holders of at least two-thirds of the voting power of all of the then outstanding shares of voting stock will be required to amend certain provisions of our amended and restated certificate of incorporation, including provisions relating to the classified board, the size of the board, removal of directors, special meetings, actions by written consent, and designation of our preferred stock. In addition, the affirmative vote of holders of 66 2/3% of the voting power of each of our Class A common stock and Class B common stock, voting separately by class, will be required to amend the provisions of our amended and restated certificate of incorporation relating to the terms of our Class B common stock. The affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of voting stock will be required to amend or repeal our amended and restated bylaws, although our amended and restated bylaws may be amended by a simple majority vote of our board of directors. |
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Stockholder Action; Special Meeting of Stockholders. Our amended and restated certificate of incorporation provides that special meetings of our stockholders may be called only by our board of directors, the chairman of our board of directors, or either of our co-Chief Executive Officers. Our amended and restated certificate of incorporation will provide that our stockholders may act by written consent until such time as holders of our Class B common stock beneficially own less than a majority of the voting power, at which time our stockholders will no longer be able to act by written consent and instead must take action at an annual or special meeting of our stockholders. As a result, holders of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws. Further, our amended and restated bylaws will provide that special meetings of our stockholders may be called only by our board of directors, the chairman of our board of directors, or our co-Chief Executive Officers, 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. |
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Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated bylaws provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders. Our amended and restated bylaws also specify certain requirements regarding the form and content of a stockholders notice. These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company. |
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No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporations certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws will not provide for cumulative voting. |
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Issuance of Undesignated Preferred Stock. After the filing of our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors. The existence of authorized but unissued shares of preferred stock 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 other means. |
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Choice of Forum. Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, (A)(i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers, other employees or stockholders to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or amended and restated bylaws (as either may be amended or restated) or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware, and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act. Our amended and restated certificate of incorporation will also provide that, to the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the foregoing. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. |
Limitations on Liability and Indemnification Matters
Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, will provide that we will indemnify each of our directors and executive officers to the fullest extent permitted by the DGCL. We have entered or will enter into indemnification agreements with each of our directors and executive officers that may, in some cases, be broader than the specific indemnification provisions contained under Delaware law. Further, pursuant to our indemnification agreements and directors and officers liability insurance, our directors and executive officers are indemnified and insured against the cost of defense, settlement or payment of a judgment under certain circumstances. In addition, as permitted by Delaware law, our amended and restated certificate of incorporation will include provisions that eliminate the personal liability of our directors for monetary damages resulting from breaches of certain fiduciary duties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recover monetary damages against a director for breach of fiduciary duties as a director.
These provisions may be held not to be enforceable for violations of the federal securities laws of the United States.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for shares of our Class A common stock, and we cannot predict the effect, if any, that market sales of shares of our Class A common stock or the availability of shares of our Class A common stock for sale will have on the market price of our Class A common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our Class A 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.
Following the completion of this offering, based on the number of shares of our capital stock outstanding as of March 31, 2021, we will have a total of 149,250,131 shares of our Class A common stock and 12,136,315 shares of our Class B common stock outstanding. This includes 22,500,000 shares of Class A common stock that we and the selling stockholder are selling in this offering, which shares may be resold in the public market immediately following this offering without restriction unless held by affiliates as that term is defined in Rule 144. Shares of our Class B common stock are convertible into an equivalent number of shares of our Class A common stock and generally convert into shares of our Class A common stock upon transfer.
The remaining outstanding shares of our Class A common stock (including shares issuable upon conversion of our Class B common stock) will be deemed restricted securities as defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. As a result of the lock-up agreements and market standoff provisions described below and subject to the provisions of Rule 144 or Rule 701, shares will be available for sale in the public market as follows:
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beginning on the date of this prospectus, all of the shares of Class A common stock sold in this offering, which includes 16,625,000 shares of Class A common stock to be sold in this offering by the selling stockholder, will be immediately available for sale in the public market; |
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an additional 20,832,967 shares of our common stock will become eligible for sale in the public market beginning on the third trading day following the latter of the date we publish our first quarterly or annual financial results following the date set forth on this prospectus and 90 days after the date of this prospectus, provided that the conditions described in Lock-Up Agreements and Market Standoff Provisions are met; and |
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the remainder of the shares of our common stock will be eligible for sale in the public market beginning on the earlier of 180 days after the date of this prospectus and the second full trading day following our second public release of quarterly or annual financial results following the date of this prospectus. |
One or more funds affiliated with Viking Global Investors LP have indicated an interest in purchasing up to $60.0 million of our Class A common stock offered in this offering. If they are allocated all or a portion of the shares in which they have indicated an interest in this offering, and they purchase any such shares, such funds will be subject to a lock-up agreement prohibiting the sale, transfer or other disposal of such shares for 180 days after the date of this prospectus, which would reduce the number of shares eligible for resale in the public market immediately following this offering. Because these indications of interest are not binding agreements or commitments to purchase, these funds may determine to purchase more, fewer or no shares in this offering or the underwriters may determine to sell more, fewer or no shares to such funds.
Lock-Up Agreements and Market Standoff Provisions
All of our directors, executive officers, and holders of substantially all of our outstanding equity securities are subject to lock-up agreements or market standoff provisions that, subject to exceptions described under the
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section titled Underwriting below, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, stock options or any security or instrument related to this common stock, or stock option for a period that is the earlier of (i) 180 days after the date of this prospectus and (ii) the second full trading day following our second public release of quarterly or annual financial results following the date of this prospectus, without the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC; provided that the lock-up agreements will expire with respect to a number of shares equal to 15% of the aggregate number of shares of common stock owned by each holder or issuable upon exercise of vested equity awards owned by each holder immediately prior to the commencement of trading on the third trading day following the date that the following conditions are met: (1) the latter of (a) the date we publish our first quarterly or annual financial results following the date set forth on the cover of this prospectus and (b) the 90th day following the date of this prospectus and (2) the closing price of our class A common stock on the NYSE is at least 33% greater than the initial public offering price of the shares to the public as set forth on the cover of this prospectus for at least 10 trading days (including the date these conditions are met) in any 15-day consecutive trading day period. These agreements are subject to certain customary exceptions. 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 the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares 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 and the requirements of the lock-up and market standoff agreements, as described above. 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 (subject to the requirements of the lock-up and market standoff agreements, as described above) 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 provisions described above, within any three-month period, a number of shares that does not exceed the greater of:
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1% of the number of shares of our Class A common stock then outstanding, which will equal approximately 1,492,501 shares immediately after this offering; or |
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the average weekly trading volume of our Class A common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale. |
Sales 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 capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
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Moreover, all Rule 701 shares are subject to lock-up agreements and or market standoff agreements as described above and under the section titled Underwriting and will not become eligible for sale until the expiration of those agreements.
Registration Statements
In connection with 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 Class A common stock subject to outstanding stock options and the shares of our Class A common stock reserved for issuance under our equity incentive plans. 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, Form S-3, and piggyback registration rights to certain of our stockholders to sell approximately 136,614,810 shares of 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. See the section titled Description of Capital StockRegistration Rights for additional information.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR CLASS A COMMON STOCK
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our Class A common stock issued or sold pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the purchase, ownership and disposition of our Class A common stock.
This discussion is limited to Non-U.S. Holders that hold our Class A common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holders particular circumstances, including the impact of the Medicare contribution tax on net investment income, the alternative minimum tax provisions of the Code, and the special tax accounting rules under Section 451(b) of the Code. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
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U.S. expatriates and former citizens or long-term residents of the United States; |
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persons holding our Class A common stock as part of a hedge, straddle, synthetic security or other risk reduction strategy or as part of a conversion transaction or other integrated investment; |
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banks, insurance companies, and other financial institutions; |
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brokers, dealers or traders in securities; |
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controlled foreign corporations, passive foreign investment companies, and corporations that accumulate earnings to avoid U.S. federal income tax; |
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partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein); |
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tax-exempt organizations or governmental organizations; |
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persons deemed to sell our Class A common stock under the constructive sale provisions of the Code; |
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persons who hold or receive our Class A common stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
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persons that own, or are deemed to own, during the applicable testing period, more than 5% of our outstanding capital stock (except to the extent specifically set forth below); |
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tax-qualified retirement plans; and |
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qualified foreign pension funds as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds. |
If an entity treated as a partnership for U.S. federal income tax purposes holds our Class A common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our Class A common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
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THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER U.S. FEDERAL NON-INCOME TAX LAWS, INCLUDING ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a Non-U.S. Holder is any beneficial owner of our Class A common stock that is neither a U.S. person nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
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an individual who is a citizen or resident of the United States; |
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a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia; |
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
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a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes. |
Distributions
As described in the section entitled Dividend Policy, we do not anticipate declaring or paying dividends to holders of our Class A common stock in the foreseeable future. However, if we do make distributions of cash or property on our Class A common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holders adjusted tax basis in its Class A common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under Sale or Other Taxable Disposition.
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder of our Class A common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States.
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Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates applicable to United States persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below regarding backup withholding, a Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our Class A common stock unless:
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the gain is effectively connected with the Non-U.S. Holders conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable); |
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the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or |
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our Class A common stock constitutes a U.S. real property interest, or USRPI, by reason of our status as a U.S. real property holding corporation, or USRPHC at any time during the five-year period preceding such disposition (or the Non-U.S. Holders holding period, if shorter), for U.S. federal income tax purposes. |
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates applicable to United States persons. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on gain realized upon the sale or other taxable disposition of our Class A common stock, which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our Class A common stock by a Non-U.S. Holder will not be subject to U.S. federal income tax if our Class A common stock is regularly traded, as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, 5% or less of our Class A common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holders holding period.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our Class A common stock will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States
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person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions on our Class A common stock paid to the Non-U.S. Holder, regardless of whether such distributions constitute dividends or whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our Class A common stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person or the holder otherwise establishes an exemption. Proceeds of a disposition of our Class A common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holders U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, our Class A common stock paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial 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 (3) 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 (1) above, it 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 specified United States persons or United States owned foreign entities (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our Class A common stock. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our Class A common stock.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR CLASS A COMMON STOCK ARISING UNDER U.S. FEDERAL NON-INCOME TAX LAWS, INCLUDING ESTATE OR GIFT TAX LAWS, OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
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The company, the selling stockholder and the underwriters named below have entered into an underwriting agreement with respect to the shares of Class A common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of Class A common stock indicated in the following table. Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC are the representatives of the underwriters.
Underwriters |
Number of
Shares |
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Goldman Sachs & Co. LLC |
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Morgan Stanley & Co. LLC |
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Barclays Capital Inc. |
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Credit Suisse Securities (USA) LLC |
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BofA Securities, Inc. |
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Cowen and Company, LLC |
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Guggenheim Securities, LLC |
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KeyBanc Capital Markets Inc. |
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Piper Sandler & Co. |
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Oppenheimer & Co. Inc. |
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Telsey Advisory Group LLC |
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Academy Securities, Inc. |
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R. Seelaus & Co., LLC |
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Samuel A. Ramirez & Company, Inc. |
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Siebert Williams Shank & Co., LLC |
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Total |
22,500,000 | |||
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The underwriters are committed to take and pay for all of the shares of Class A common stock being offered, if any are taken, other than the shares of Class A common stock covered by the option described below unless and until this option is exercised.
One or more funds affiliated with Viking Global Investors LP have indicated an interest in purchasing up to $60.0 million of our Class A common stock offered in this offering and one or more funds affiliated with Franklin Templeton have indicated an interest in purchasing up to $40 million of our Class A common stock offered in this offering, in each case, at the initial public offering price. Because these indications of interest are not binding agreements or commitments to purchase, these funds may determine to purchase more, fewer or no shares in this offering, or the underwriters may determine to sell more, fewer or no shares to such funds. The underwriters will receive the same discount from any of our shares of Class A common stock purchased by these funds as they will from any other shares of Class A common stock sold to the public in this offering. Any shares purchased in this offering by one or more funds affiliated with Viking Global Investors LP will be subject to a lock-up agreement prohibiting the sale, transfer or other disposal of such shares for 180 days after the date of this prospectus.
The underwriters have an option to buy up to an additional 3,375,000 shares of Class A common stock from the company and selling stockholder to cover sales by the underwriters of a greater number of shares of Class A common stock than the total number set forth in the table above. They may exercise that option for 30 days. If any shares of Class A common stock are purchased pursuant to this option, the underwriters will severally purchase shares of Class A common stock in approximately the same proportion as set forth in the table above.
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The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by the company and the selling stockholder. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase 3,375,000 additional shares of Class A common stock.
Paid by the Company
No Exercise | Full Exercise | |||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
Paid by the Selling Stockholder
No Exercise | Full Exercise | |||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
Shares of Class A common stock 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 of Class A common stock 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 of Class A common stock, the representatives may change the offering price and the other selling terms. The offering of the shares of Class A common stock by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
We currently anticipate that up to 1.0% of the shares of Class A common stock offered hereby will, at our request, be offered to retail investors through Robinhood Financial, LLC, as a selling group member, via its online brokerage platform. Robinhood Financial is not acting as an underwriter in this offering and is not affiliated with the company. Purchases through the Robinhood platform will be subject to the terms, conditions and requirements set by Robinhood. Any purchase of our Class A common stock in this offering through the Robinhood platform will be at the same initial public offering price, and at the same time, as any other purchases in this offering, including purchases by institutions and other large investors. The Robinhood platform and information on the Robinhood application do not form a part of this prospectus.
The company and its officers, directors and holders of substantially all of the companys common stock, including the selling stockholder, 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 Class A common stock (the Lock-up Restrictions) during the period from the date of this prospectus continuing, with respect to the company, for 180 days, and with respect to the companys officers, directors and stockholders, to the earlier of (i) 180 days after the date of this prospectus and (ii) the second full trading day following the companys second public release of quarterly or annual financial results following the date of this prospectus, (the Lock-up Period), except with the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, and subject to certain exceptions below.
Notwithstanding the foregoing, with respect to the companys officers, directors and stockholders, the Lock-up Restrictions will expire (the Early Release) with respect to a number of shares equal to 15% of the aggregate number of shares of common stock owned by such holder or issuable upon exercise of vested equity awards owned by such holder (measured as of the date of the Measurement Date (as defined below)) immediately prior to the commencement of trading on the third trading day following the date that the following conditions are met (the Measurement Date): (1) the latter of (a) the date the company publishes its first quarterly or annual financial results following the date set forth on the cover of this prospectus and (b) the 90th day following the date set forth on the cover of this prospectus (the Threshold Date) and (2) the closing price of the Class A common stock on the New York Stock Exchange is at least 33% greater than the initial public offering price of
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the shares to the public as set forth on the cover of this prospectus for at least 10 trading days (including the Measurement Date) in any 15-day consecutive trading day period (the Measurement Period). For the avoidance of doubt, the Measurement Period may begin prior to or after the Threshold Date. the company may, in its discretion, extend the date of the Early Release as reasonably needed for administrative processing or to the extent such release date would occur during a blackout period, in which case, the company will publicly announce the date of the Early Release following the close of trading on the date that is at least two trading days prior to the Early Release.
Notwithstanding the Lock-up Restrictions, holders subject to Lock-up Restrictions may (a) transfer the holders shares of common stock and derivative instruments: (i) as a bona fide gift or gifts or charitable contribution, or for bona fide estate planning purposes; provided that the donee or donees thereof agree to be bound in writing by the Lock-up Restrictions; (ii) to any trust for the direct or indirect benefit of the holder or the immediate family of the holder, or if the holder is a trust, to a trustor or beneficiary of the trust, provided that the trustee of the trust agrees to be bound in writing by the Lock-up Restrictions; and provided further that any such transfer shall not involve a disposition for value; (iii) in connection with the sale or other transfer of the holders shares of common stock acquired in this offering if the holder is not a director or officer or other securities acquired in open market transactions after the completion of this offer; (iv) upon death, by will or intestacy, provided that the legatee, heir or other transferee, as the case may be, agrees to be bound in writing by the Lock-up Restrictions; (v) to any immediate family member, provided that such immediate family member agrees to be bound by the Lock-up Restrictions; (vi) to a partnership, limited liability company or other entity of which the holder and the immediate family members of the holder are the legal and beneficial owner of all of the outstanding equity securities or similar interests, provided that the transferee agrees to be bound in writing by the Lock-up Restrictions; (vii) by operation of law or pursuant to a qualified domestic order or in connection with a divorce settlement or any related court order, provided that such transferee agrees to be bound in writing by the Lock-up Restrictions; (viii) as part of a distribution, transfer or disposition without consideration by the holder to its limited or general partners, members or equity holders, or to any investment fund or other entity controlling, controlled by, managing or managed by or under common control or management with the holder or affiliates of the holder (including, for the avoidance of doubt, where the holder is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), provided that the transferee agrees to be bound in writing by the Lock-up Restrictions; (ix) in connection with the reclassification of the outstanding capital stock of the company as described in this prospectus, provided that any such shares of common stock received upon such reclassification shall remain subject to the Lock-up Restrictions; (x) pursuant to a bona fide third-party merger, consolidation, tender offer or other similar transaction involving a change of control of the company occurring after the settlement of this offering that is approved by the companys board of directors and made to all holders of the companys capital stock, provided that all of the holders common stock or derivative instruments subject to the Lock-up Restrictions that are not so transferred, tendered or otherwise disposed of remain subject to the Lock-up Restrictions; and provided further that, in the event that such change of control is not completed, the holders shares of common stock and derivate instruments shall remain subject to the Lock-up Restrictions and title to the holders shares of common stock or derivative instruments of the company shall remain with the holder; (xi) to the company pursuant to contractual arrangements under which the company has, in connection with the termination of service of the holder, (A) the option to repurchase such shares of common stock or derivative instruments or (B) a right of first refusal with respect to transfers of such shares of common stock or derivative instruments; provided that in the case of clauses (A) and (B) above, (1) such contractual arrangement (or a form thereof) is described in this prospectus or filed as an exhibit to the registration statement and (2) such contractual arrangement is in effect on the date of this prospectus; (xii) to the underwriters pursuant to the underwriting agreement; (xiii) in connection with the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase the shares of common stock (including, in each case, by way of net or cashless exercise), including (A) any transfer to the company for the payment of exercise price, tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, options or rights, and (B) any transfer of shares of common stock necessary to generate such amount of cash needed for the payment of withholding taxes due as a result of the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase shares of common stock, in all such cases, pursuant to equity awards granted under a stock incentive plan or other equity award plan, which plan
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is described in this prospectus; or (xiv) with the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC on behalf of the underwriters; and (b) enter into a written plan meeting the requirements of Rule 10b5-1 under the Exchange Act relating to the transfer, sale or other disposition of securities of the holder, if then permitted by the company; provided that the securities subject to the plan may not be sold during the Lock-Up Period (except to the extent otherwise allowed pursuant to clause (a) above) and no public announcement or filing under the Exchange Act, or any other public filing or announcement, shall be required or shall be voluntarily made regarding the establishment of such plan during the Lock-Up Period. Notwithstanding anything to the contrary, in the case of clauses (i) through (iii), (v), (vi), (viii) and (xi)(B) above, no filing under the Exchange Act or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of common stock or derivative instruments by or on behalf of the holder shall be required or voluntarily made during the Lock-Up Period; in the case of any transfers pursuant to clauses (iv), (vii), (ix), (xi)(A) and (xiii) above, any filing that is required under the Exchange Act to be made during the Lock-Up Period shall clearly indicate in the footnotes thereto that the filing relates to the circumstances described in such clauses; and in the case of any transfers pursuant to clauses (ii), (iv) and (v), any such transfer shall not involve a disposition for value.
The Lock-up Restrictions do not apply to the company with respect to (1) the shares to be sold in this offering, (2) any shares of common stock issued upon the reclassification of common stock outstanding on the date of this prospectus in connection with this offering and as described in the registration statement and this prospectus, (3) any shares of common stock or any securities or other awards (including without limitation options, restricted stock or restricted stock units) convertible into, exercisable for, or that represent the right to receive, shares of common stock pursuant to any stock option plan, incentive plan or stock purchase plan of the company (collectively, Company Stock Plans) or otherwise in equity compensation arrangements described in the registration statement and this prospectus or any shares of common stock issuable upon the exercise, conversion or settlement of such awards, provided that any recipient thereof has provided to the Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC a signed lock-up letter, (4) the issuance by the company of shares of its Class A common stock upon the conversion of shares of its Class B common stock, provided the recipient of such shares of Class A common stock shall have provided to Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC a signed lock-up letter, (5) the filing by the company of any registration statement on Form S-8 or a successor form thereto relating to any Company Stock Plan described in the registration statement and this prospectus or any assumed employee benefit plan contemplated by clause (6), and (6) any shares of common stock or any securities convertible into or exchangeable for, or that represent the right to receive, shares of common stock issued in connection with any bona fide joint venture, commercial or collaborative relationship or the acquisition or license by the company of the securities, businesses, property or other assets of another person or entity or pursuant to any employee benefit plan assumed by the company in connection with any such acquisition, provided that in the case of clause (6), the aggregate number of shares that the company may sell or issue or agree to sell or issue pursuant to clause (6), (x) shall not exceed 5.0% of the total number of shares of common stock issued and outstanding immediately following the completion of the offering) and (y) the recipients thereof provide to Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC a signed lock-up letter.
Prior to the offering, there has been no public market for the shares of Class A common stock. The initial public offering price has been negotiated among the company and the representatives. Among the factors to be considered in determining the initial public offering price of the shares of Class A common stock, in addition to prevailing market conditions, will be the companys historical performance, estimates of the business potential and earnings prospects of the company, an assessment of the companys management and the consideration of the above factors in relation to market valuation of companies in related businesses.
We have applied to list the Class A common stock on the NYSE under the symbol FIGS. In order to meet one of the requirements for listing the Class A common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial holders.
In connection with the 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
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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 the 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 amount 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 amount 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 Class A common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of Class A common stock made by the underwriters in the open market prior to the completion of the 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.
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 the companys Class A stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the Class A common stock. As a result, the price of the Class A common stock may be higher than the price that otherwise might exist in the open market. 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.
The company and the selling stockholder estimate that their share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $5.5 million. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $40,000. The underwriters have agreed to reimburse us for certain expenses incurred by us in connection with this offering upon closing of this offering.
The company and the selling stockholder have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
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 the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses. Goldman Sachs & Co. LLC beneficially owns a less than 1% interest in Tulco, LLC, our majority stockholder and the selling stockholder, which was acquired in 2018. An affiliate of Guggenheim Securities, LLC beneficially owns approximately a 2.6% interest in the Company, which was acquired in 2020.
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
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otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate 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.
Directed Share Program
At our request, the underwriters have reserved up to 5.0% of the shares of Class A common stock offered by this prospectus for sale at the initial public offering price through a directed share program to certain individuals identified by management. Any shares sold under the directed share program will not be subject to the terms of any lock-up agreement, except in the case of shares purchased by any of our officers or directors. The number of shares of Class A common stock available for sale to the general public will be reduced by the number of reserved shares sold to these individuals. Any reserved shares not purchased by these individuals will be offered by the underwriters to the general public on the same basis as the other shares of Class A common stock offered under this prospectus. We will agree to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act of 1933, in connection with sales of the shares reserved for the directed share program. The directed share program will be arranged through Morgan Stanley & Co. LLC.
Selling Restrictions
European Economic Area
In relation to each Member State of the European Economic Area (each a Relevant State), no shares have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that the shares may be offered to the public in that Relevant State at any time:
(a) |
to any legal entity which is a qualified investor as defined under Article 2 of the Prospectus Regulation; |
(b) |
to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
(c) |
in any other circumstances falling within Article 1(4) of the Prospectus Regulation, |
provided that no such offer of the shares shall require the company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an offer to the public in relation to the shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, and the expression Prospectus Regulation means Regulation (EU) 2017/1129.
United Kingdom
No shares have been offered or will be offered pursuant to the offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority, except that the shares may be offered to the public in the United Kingdom at any time:
(a) |
to any legal entity which is a qualified investor as defined under Article 2 of the UK Prospectus Regulation; |
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(b) |
to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or |
(c) |
in any other circumstances falling within Section 86 of the FSMA. |
provided that no such offer of the shares shall require the company or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
For the purposes of this provision, the expression an offer to the public in relation to the shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares and the expression UK Prospectus Regulation means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
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 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 form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchasers province or territory 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.
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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 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 corporations 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), or the 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.
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The validity of the shares of our Class A common stock offered hereby will be passed upon for us by Latham & Watkins LLP. Certain legal matters will be passed upon for the underwriters by Cooley LLP.
The financial statements audited by Ernst & Young LLP as of and for each of the years ended December 31, 2019 and 2020 have been included in this prospectus in reliance on their report given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our Class A 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 and schedules filed therewith. For further information about us and the Class A 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. 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.
As a result of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SECs public reference facilities and the website of the SEC referred to above. We also maintain a website at www.wearfigs.com. Upon the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The inclusion of our website address in this prospectus is an inactive textual reference only. The information contained in or accessible through our website is not part of this prospectus or the registration statement of which this prospectus forms a part, and investors should not rely on such information in making a decision to purchase our Class A common stock in this offering.
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F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of FIGS, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of FIGS, Inc. (the Company) as of December 31, 2019 and 2020, the related statements of income and comprehensive income, stockholders equity and cash flows for the years then ended and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys 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 Companys 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
We have served as the Companys auditor since 2017.
Los Angeles, California
March 17, 2021, except for the effects of the stock split discussed in Note 2 to the financial statements, as to which the date is May 20, 2021
F-2
FIGS, INC.
(In thousands, except share and per share data)
As of December 31, | ||||||||
Assets | 2019 | 2020 | ||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 38,353 | $ | 58,133 | ||||
Accounts receivable |
1,758 | 5,780 | ||||||
Inventory, net |
14,300 | 49,735 | ||||||
Prepaid expenses and other current assets |
1,992 | 6,665 | ||||||
|
|
|
|
|||||
Total current assets |
56,403 | 120,313 | ||||||
Non-current assets |
||||||||
Property and equipment, net |
5,749 | 6,529 | ||||||
Deferred tax assets |
| 6,507 | ||||||
Other assets |
446 | 506 | ||||||
|
|
|
|
|||||
Total non-current assets |
6,195 | 13,542 | ||||||
|
|
|
|
|||||
Total assets |
$ | 62,598 | $ | 133,855 | ||||
|
|
|
|
|||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 10,522 | $ | 11,965 | ||||
Accrued expenses |
3,186 | 6,682 | ||||||
Accrued compensation and benefits |
1,848 | 4,214 | ||||||
Sales tax payable |
2,548 | 3,076 | ||||||
Gift card liability |
991 | 3,019 | ||||||
Deferred revenue |
988 | 1,781 | ||||||
Returns reserve |
776 | 1,677 | ||||||
Income tax payable |
| 105 | ||||||
|
|
|
|
|||||
Total current liabilities |
20,859 | 32,519 | ||||||
Non-current liabilities |
||||||||
Deferred rent and lease incentive |
2,925 | 3,659 | ||||||
|
|
|
|
|||||
Total liabilities |
23,784 | 36,178 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Common stockpar value $0.0001 per share, 171,000,000 and 207,000,000 shares authorized as of December 31, 2019 and 2020, respectively; 153,052,983 and 154,444,851 shares issued and outstanding as of December 31, 2019 and 2020, respectively. |
15 | 15 | ||||||
Additional paid-in capital |
61,070 | 70,175 | ||||||
(Accumulated deficit) retained earnings |
(22,271 | ) | 27,487 | |||||
|
|
|
|
|||||
Total stockholders equity |
38,814 | 97,677 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 62,598 | $ | 133,855 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-3
FIGS, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except share and per share data)
Years ended December 31, | ||||||||
2019 | 2020 | |||||||
Net revenues |
$ | 110,494 | $ | 263,112 | ||||
Cost of goods sold |
31,158 | 72,888 | ||||||
|
|
|
|
|||||
Gross profit |
79,336 | 190,224 | ||||||
Operating expenses |
||||||||
Selling |
24,840 | 51,896 | ||||||
Marketing |
33,193 | 38,852 | ||||||
General and administrative |
21,650 | 41,536 | ||||||
|
|
|
|
|||||
Total operating expenses |
79,683 | 132,284 | ||||||
|
|
|
|
|||||
Net (loss) income from operations |
(347 | ) | 57,940 | |||||
Other income, net |
||||||||
Interest income |
460 | 136 | ||||||
Other expense |
(1 | ) | | |||||
|
|
|
|
|||||
Total other income, net |
459 | 136 | ||||||
|
|
|
|
|||||
Net income before provision for income taxes |
112 | 58,076 | ||||||
Provision for income taxes |
| 8,318 | ||||||
Net income and comprehensive income |
$ | 112 | $ | 49,758 | ||||
|
|
|
|
|||||
Basic earnings per share |
$ | | $ | 0.32 | ||||
|
|
|
|
|||||
Diluted earnings per share |
$ | | $ | 0.30 | ||||
|
|
|
|
|||||
Weighted-average shares outstandingbasic |
153,052,983 | 153,327,308 | ||||||
|
|
|
|
|||||
Weighted-average shares outstandingdiluted |
153,624,013 | 163,331,348 | ||||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
FIGS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data)
Common Stock | ||||||||||||||||||||||||
Shares | Amount |
Contribution
Receivable |
Additional
Paid-in Capital |
(Accumulated
Deficit) Retained Earnings |
Total
Stockholders Equity |
|||||||||||||||||||
December 31, 2018 |
153,052,983 | $ | 15 | $ | (14,000 | ) | $ | 60,891 | $ | (22,383 | ) | $ | 24,523 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stock-based compensation |
| | | 179 | | 179 | ||||||||||||||||||
Contributed capital |
| | 14,000 | | | 14,000 | ||||||||||||||||||
Net income |
| | | | 112 | 112 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2019 |
153,052,983 | $ | 15 | $ | | $ | 61,070 | $ | (22,271 | ) | $ | 38,814 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stock-based compensation |
| | | 8,713 | | 8,713 | ||||||||||||||||||
Stock option exercises |
1,391,868 | | | 392 | | 392 | ||||||||||||||||||
Net income |
| | | | 49,758 | 49,758 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
December 31, 2020 |
154,444,851 | $ | 15 | $ | | $ | 70,175 | $ | 27,487 | $ | 97,677 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-5
FIGS, INC.
(In thousands)
Years Ended
December 31, |
||||||||
Cash flows from operating activities: | 2019 | 2020 | ||||||
Net income |
$ | 112 | $ | 49,758 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization expense |
517 | 946 | ||||||
Benefit for deferred income taxes |
| (6,507 | ) | |||||
Loss on disposal of property and equipment |
120 | 2 | ||||||
Stock-based compensation |
179 | 8,713 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,266 | ) | (4,023 | ) | ||||
Inventory |
(763 | ) | (35,435 | ) | ||||
Prepaid expenses and other current assets |
254 | (4,672 | ) | |||||
Other assets |
(342 | ) | 38 | |||||
Accounts payable |
2,715 | 1,207 | ||||||
Accrued expenses |
464 | 4,266 | ||||||
Deferred revenue |
(712 | ) | 794 | |||||
Accrued compensation and benefits |
713 | 2,366 | ||||||
Returns reserve |
267 | 901 | ||||||
Sales tax payable |
636 | 527 | ||||||
Income tax payable |
| 105 | ||||||
Gift card liability |
722 | 2,028 | ||||||
Deferred rent and lease incentive |
2,915 | 734 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
6,531 | 21,748 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(4,761 | ) | (2,262 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(4,761 | ) | (2,262 | ) | ||||
Cash flows from financing activities: |
||||||||
Payment of financing costs |
| (98 | ) | |||||
Proceeds from contributed capital |
14,000 | | ||||||
Proceeds from stock option exercises |
| 392 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
14,000 | 294 | ||||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
15,770 | 19,780 | ||||||
Cash and cash equivalents, beginning of year |
22,583 | 38,353 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of year |
$ | 38,353 | $ | 58,133 | ||||
|
|
|
|
|||||
Supplemental disclosures: |
||||||||
Income taxes paid |
$ | | $ | 18,162 | ||||
Property and equipment in accounts payable and accrued expenses |
$ | 770 | $ | 236 |
The accompanying notes are an integral part of these financial statements.
F-6
FIGS, INC.
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2020
1. DESCRIPTION OF BUSINESS
FIGS, Inc. (the Company), a Delaware Corporation, was founded in 2013 and is a founder-led, direct-to-consumer healthcare apparel and lifestyle brand company. The Company designs and sells healthcare apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks footwear, masks and face shields. The Company markets and sells its products primarily in the United States. Sales are primarily generated through the Companys digital platforms.
Impact of COVID-19
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.
In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work from home policies for certain employees. The COVID-19 pandemic has the potential to significantly impact the Companys manufacturing supply chain, distribution, logistics and other services. Certain of the Companys suppliers experienced delays and shut-downs due to the COVID-19 pandemic. In order to manage the impact of these disruptions and meet its customers expectations, the Company increased the use of more costly air freight during 2020, which increased cost of goods sold. The Company has not experienced the pandemics adverse impacts in any additional material respect.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company has prepared the accompanying financial statements in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).
Stock Split
On May 19, 2021, the Company effected a nine-for-one forward stock split of its issued and outstanding common stock, stock options and RSUs. Accordingly, all share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Significant estimates include, but are not limited to, the valuation of the net realizable value of inventory, reserves for sales returns, allowances for doubtful accounts, stock-based compensation, contingent sales tax liability, and the useful lives and recoverability of long-lived assets. Actual results could differ from those estimates.
F-7
Loss Contingencies
The Company may be involved in legal proceedings, claims and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business resulting in loss contingencies. Loss contingencies are accrued for when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, the range of such reasonably possible losses would be disclosed. Loss contingencies considered remote are generally not disclosed.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses valuation techniques that are based upon observable and unobservable inputs. Observable inputs are developed using market data such as publicly available information and reflect the assumptions market participants would use, while unobservable inputs are developed using the best information available about the assumptions market participants would use. Assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has no assets or liabilities classified as Level 3 on its balance sheets as of December 31, 2019 and 2020.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents.
The Companys cash and cash equivalents are held with creditworthy financial institutions. Although the Companys deposits held with banks may exceed the amount of federal insurance provided on such deposits, the Company has not experienced any losses in such accounts. The Company invests its excess cash in money market accounts.
The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents for the amounts reflected on the balance sheets.
F-8
Comprehensive Income
Comprehensive income includes net income as well as other changes in stockholders equity that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2019 and 2020, there was no difference between net income and comprehensive income.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. The Companys cash equivalents, which are funds held in a money market account, are measured at fair value on a recurring basis. The carrying amount of cash equivalents was $27.6 million and $50.2 million as of December 31, 2019 and 2020, respectively, which approximates fair value and was determined based upon Level 1 inputs. The money market account is valued using quoted market prices with no valuation adjustments applied and is categorized as Level 1.
Accounts Receivable
Accounts receivable consists of trade accounts receivables relating primarily to the credit card receivables arising from the sale of products to customers through the Companys digital platforms. Trade accounts receivable is reported net of an allowance for doubtful accounts. The Company had no allowance for doubtful accounts as of December 31, 2019 and 2020. Other receivables generally relate to amounts due to the Company that result from activities that are not related to the direct sale of the Companys products.
Inventory, Net
Inventory consists of finished goods and is accounted for using an average cost method. Inventory is valued at the lower of cost or net realizable value. The Company records a provision for excess and obsolete inventory to adjust the carrying value of inventory based on assumptions regarding future demand for the Companys products.
Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration, and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence, or impaired inventory. Excess and obsolete inventory is charged to cost of goods sold.
The Company recorded an allowance to write down inventory of $0.8 million as of December 31, 2020, to reduce inventory to the lower of cost or to its net realizable value. There was no allowance to write down inventory as of December 31, 2019.
Property and Equipment, Net
Property and equipment are recorded at cost, net of accumulated depreciation and amortization. The Company depreciates property and equipment using the straight-line method over the estimated useful lives of the assets, which range from three to ten years.
Estimated useful life (years) | ||
Furniture and fixtures |
7 | |
Office equipment |
5 | |
Machinery and equipment |
10 | |
Computer equipment |
3 | |
Software and website development |
5 | |
Leasehold improvements |
Shorter of the lease term or
the estimated life of the asset |
F-9
Upon the sale or disposal of property and equipment, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in general and administrative expense in the statements of income and comprehensive income. Maintenance and repairs are charged to the general and administrative expenses in the statements of income and comprehensive income as incurred, while expenditures for major renewals and betterments that extend the useful life of an asset or provide additional utility are capitalized.
The Company has incurred costs related to the development of the Companys websites. The Company capitalizes these website development costs, as applicable, in accordance with ASC Subtopic 350-50, IntangiblesGoodwill and OtherWebsite Development Costs (ASC 350-50). ASC 350-50 requires that costs incurred during the website development stage be capitalized. Capitalized website costs include salary and benefit costs for Company employees and contractors that develop the website. When the development phase is substantially complete and the website is ready for its intended purpose, capitalized costs are amortized using the straight-line method over the five-year useful life.
Cloud Computing Costs
The Company also capitalizes software license fees and implementation costs associated with cloud hosting arrangements that are service contracts. These amounts are included in other assets in the accompanying balance sheets. Amortization of the software license fees is calculated using the straight-line method over the term of the service contract. Amortization of the implementation costs is calculated using the straight-line method based on the term of the service contract or based on the expected utilization of the asset and commences once the module or component is ready for its intended use.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset or group of assets to the future undiscounted cash flows expected to be generated by the asset or asset group. If the evaluation of the forecasted cash flows indicates that the carrying value of the assets is not recoverable, the assets are written down to their fair value. No such impairments have been identified for the years ended December 31, 2019 and 2020.
Deferred Rent and Lease Incentive
The Company leases certain facilities under non-cancelable operating leases. The Companys leases generally contain escalating payments over the lease term or rent holiday periods. Rent expense is recognized on a straight-line basis over the term of the lease, beginning when the Company takes possession of the leased space. The difference between the rent expense and cash paid to landlords is recorded as a deferred rent liability in the accompanying balance sheets.
In certain cases, the Company receives allowances for construction and leasehold improvements from its landlords which are recorded as a deferred lease credit in the accompanying balance sheets and amortizes the deferred lease credit as a reduction of rent expense in the accompanying statements of income and comprehensive income over the term of the lease.
Sales Tax
Based on the 2018 Supreme Court decision in South Dakota v. Wayfair Inc., an increasing number of states have considered or adopted laws or administrative practices, with or without notice, that impose new taxes on remote sellers to collect transaction taxes such as sales, consumption, or similar taxes. The Company follows the guidelines of ASC 450, Contingencies, and its financial statements reflect the current impact of such legislation.
F-10
Revenue Recognition
The Company recognizes revenues in accordance with Financial Accounting Standards Board (FASB) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606). Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company recognizes revenue from the commercial sales of products and contracts by applying the following five steps (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the good or services it transfers to the customer. The Company recognizes revenue at a point in time when it satisfies a performance obligation and transfers control of the products to the respective customers, which occurs when the goods are transferred to a common carrier. Shipping and handling costs associated with outbound freight incurred to transfer a product to a customer are treated as a fulfillment activity, and as a result, any fees received from customers are included in the transaction price for the performance obligation of providing goods to the customer.
The Company generally provides refunds for goods returned within 30 days from the original purchase date. A returns reserve is recorded by the Company based on the historical refund pattern. The returns reserve in the balance sheets was $0.8 million and $1.7 million as of December 31, 2019 and 2020, respectively.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The Company records deferred revenue when it receives payments in advance of the transfer of the goods to a common carrier. The amounts recorded are expected to be recognized as revenue within the 12 months following the balance sheet and, therefore, are classified as current liabilities in the balance sheets.
The Company does not have significant contract balances other than deferred revenue, the allowance for sales returns and liabilities related to its gift cards. The Company does not have significant contract acquisition costs.
The following table presents the disaggregation of the Companys net revenues for the years ended December 31, 2019 and 2020 (in thousands):
Years ended December 31, | ||||||||
2019 | 2020 | |||||||
By geography: |
||||||||
United States |
$ | 109,932 | $ | 253,723 | ||||
Rest of the world |
562 | 9,389 | ||||||
|
|
|
|
|||||
$ | 110,494 | $ | 263,112 | |||||
|
|
|
|
|||||
By product: |
||||||||
Scrubs |
$ | 97,629 | $ | 227,988 | ||||
Non-scrubs |
12,865 | 35,124 | ||||||
|
|
|
|
|||||
$ | 110,494 | $ | 263,112 | |||||
|
|
|
|
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of purchased merchandise and includes import duties and other taxes, freight-in, defective merchandise returned by customers, inventory write-offs and other miscellaneous shrinkage as well as compensation and benefits related to embroidery personnel.
F-11
Selling Expenses
Selling expenses primarily include the cost of shipping and handling, fulfillment and credit card sales processing. Shipping and handling costs are associated with outbound freight after control over a product has transferred to a customer and, as such, are included in selling expenses.
Marketing Expenses
Marketing expenses primarily consist of digital and brand advertising. The Companys marketing costs are primarily comprised of digital advertising through search engines and social media and are expensed as incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits and stock-based compensation, charitable contributions, including the cost of product donations, other related costs, including certain third-party consulting and contractor expenses, certain facilities costs, software expenses, legal expenses and recruiting fees, and overhead.
Stock-Based Compensation
The Company measures and recognizes stock-based compensation expense for all stock option awards granted to employees and non-employees based on their estimated fair values as of the grant date using the Black-Scholes option-pricing model. The Companys use of the Black-Scholes option-pricing model to estimate the fair value of stock options granted requires the input of various assumptions which are as follows:
|
Risk-free interest ratedetermined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. |
|
Expected volatilityas there is no public market for its common stock, the Company determines the volatility for awards granted based on an analysis of reported data for a group of peer companies that issued options with substantially similar terms. The expected volatility has been determined using a weighted-average of the historical volatility measures of this group of guideline companies. The Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. |
|
Expected dividend yieldthe Company has not paid, and does not currently anticipate paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. |
|
Expected termthe expected term of the Companys stock options granted to employees has been determined utilizing the simplified method for awards that qualify as plain-vanilla options, which calculates the expected term as the average of the time-to-vesting and the contractual life of options. |
|
Fair value of common stockthe fair value of the Companys common stock has been determined on input from management and approved by the Board, utilizing the valuation of the Companys enterprise value determined utilizing various methods, including the guideline public company method or a weighting of the guideline public company method and discounted cash flow method. The total enterprise value is then allocated to the various outstanding equity instruments, including the underlying common stock, utilizing the option-pricing model or private secondary transactions or a weighting of them. |
For employee and non-employee options, the Company recognizes compensation expense based on the grant date fair value of the award over the requisite service period, which is generally the vesting period of the respective award based on the grant date fair value of the award. The Company accounts for forfeitures as they occur.
F-12
The Company measures the fair value of the restricted stock units (RSUs) granted to employees based on the fair market value of its common stock on the grant date. The Companys RSU grants vest upon the satisfaction of both a service condition and a performance condition. The service condition for these awards is satisfied ratably over four years. The performance condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or an initial public offering (IPO) and is not deemed probable to occur until it occurs. As of December 31, 2019 and 2020, the performance condition was not probable to occur and, therefore, no stock-based compensation expense has been recognized for the Companys RSU awards. If and when the performance condition is deemed probable to occur, the Company will record cumulative stock-based compensation expense using the accelerated attribution method for those RSUs for which the service condition has been satisfied prior to the qualifying event, and the Company will record the remaining unrecognized stock-based compensation expense over the remainder of the requisite service period.
The Company classifies stock-based compensation expense in its statements of income and comprehensive income in the same manner in which the award recipients cash compensation costs are classified. For the years ended December 31, 2019 and 2020, the Company recorded stock-based compensation of $0.2 million and $8.7 million, respectively, which are all recorded in general and administrative expense on the statements of income and comprehensive income.
Income Taxes
The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributed to temporary differences between the financial reporting basis and the respective tax basis of these assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded for carryforwards and other deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Based on its facts, the Company considered all available evidence, both positive and negative, including historical levels of taxable income, expectations, and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. As of December 31, 2019, the Company recorded a valuation allowance against its deferred tax assets as it was more likely than not that the Company would not be able to realize its deferred tax assets. The Company has released its valuation allowance in 2020 and is not recording a valuation allowance against any of its deferred tax assets as of December 31, 2020.
The Company uses a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by 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 and litigation processes, if any. The second step is to measure the largest amount of tax benefit as the largest amount that is more likely than not to be realized upon settlement.
Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of December 31, 2019 and 2020, there are no known uncertain tax positions.
Earnings per Share
The Company presents both basic and diluted earnings per share amounts. Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation of diluted earnings per
F-13
share in periods for which they have an anti-dilutive effect. Stock options for which the exercise price exceeds the average market price over the period are anti-dilutive and, accordingly, excluded from the calculation.
Segment Information
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision maker (CODM), in deciding how to allocate resources to an individual segment and in assessing performance. The Companys CODM are its co-chief executive officers. The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. Therefore, the Company has concluded that it has one reportable segment.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement, (ASU 2018-13). This update removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company has adopted this update as of January 1, 2020 and noted no effect on the financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016- 02, Leases (Topic 842), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard also requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company is required to adopt the standard on January 1, 2022 and is currently evaluating the impact that ASU 2016-02 will have on the financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (ASU 2016-13). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact that ASU 2016-13 will have on the financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax
F-14
liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that ASU 2019-12 will have on the financial statements and related disclosures.
3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
As of December 31, 2019 and 2020, the Companys cash equivalents consisted of money market funds, classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets without any valuation adjustment (in thousands).
Fair Value Measurement as of
December 31, 2019 |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
|
|||||||||||||||
Money market funds |
$ | 27,593 | $ | | $ | | $ | 27,593 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 27,593 | $ | | $ | | $ | 27,593 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair Value Measurement as of
December 31, 2020 |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
|
|||||||||||||||
Money market funds |
$ | 50,219 | $ | | $ | | $ | 50,219 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 50,219 | $ | | $ | | $ | 50,219 | |||||||||
|
|
|
|
|
|
|
|
There have been no transfers between fair value levels during the years ended December 31, 2019 and 2020. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
4. ACCOUNTS RECEIVABLE
The accounts receivable consisted of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Trade |
$ | 1,381 | $ | 1,704 | ||||
Other |
377 | 4,076 | ||||||
|
|
|
|
|||||
$ | 1,758 | $ | 5,780 | |||||
|
|
|
|
The other accounts receivable as of December 31, 2019 and 2020 is primarily comprised of receivables related to vendor refunds and amounts due to the Company that result from activities that are not related to the direct sale of the Companys products.
F-15
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Inventory deposits |
$ | 363 | $ | 963 | ||||
Prepaid expenses |
786 | 1,406 | ||||||
Prepaid taxes |
| 3,493 | ||||||
Sample kits |
391 | 33 | ||||||
Other prepaid expenses and current assets |
452 | 770 | ||||||
|
|
|
|
|||||
$ | 1,992 | $ | 6,665 | |||||
|
|
|
|
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Furniture and fixtures |
$ | 769 | $ | 808 | ||||
Office equipment |
546 | 765 | ||||||
Machinery and equipment |
424 | 752 | ||||||
Computer equipment |
378 | 610 | ||||||
Software and website design |
19 | 1,704 | ||||||
Vehicles |
19 | | ||||||
Leasehold improvements |
3,017 | 3,017 | ||||||
Capital projects in progress |
1,041 | 312 | ||||||
|
|
|
|
|||||
Total property and equipment |
6,213 | 7,968 | ||||||
Less: accumulated depreciation and amortization |
(464 | ) | (1,439 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 5,749 | $ | 6,529 | ||||
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2019 and 2020 on property and equipment was $0.5 million and $0.9 million, respectively.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Accrued inventory |
$ | | $ | 3,151 | ||||
Accrued shipping |
877 | 656 | ||||||
Other accrued expenses |
2,309 | 2,875 | ||||||
|
|
|
|
|||||
$ | 3,186 | $ | 6,682 | |||||
|
|
|
|
8. FINANCING ARRANGEMENTS
On September 5, 2017, the Company, as borrower, entered into a credit agreement with First Choice Bank, as lender, administrative agent and promissory note issuer for a $5.0 million revolving credit facility (the Prior
F-16
Credit Facility). On October 5, 2018, the principal amount of the Prior Credit Facility was increased to $10.0 million. On January 7, 2019, the Company amended the Prior Credit Facility to extend the maturity date to January 12, 2022 and carved out of the Prior Credit Facility two standby letters of credit. The Company had letters of credit aggregating to $2.3 million as of December 31, 2019. Availability under the Credit Facility was $7.7 million as of December 31, 2019. On January 10, 2020, the Company amended and extended a letter of credit, increasing the aggregate of letters of credit to $2.4 million. In December 2020, the Prior Credit Facility was terminated.
On December 2, 2020, the Company, as borrower, entered into a credit agreement with JPMorgan Chase Bank, N.A for an initial $50.0 million revolving credit facility (including capacity to issue letters of credit (the Existing Credit Facility). The Existing Credit Facility has a maturity date of December 2, 2025 (Maturity Date). Subject to certain conditions, the Existing Credit Facility also provides for an additional $25.0 million of capacity. The Company had letters of credit aggregating to $3.2 million outstanding under the Existing Credit Facility as of December 31, 2020. As of December 31, 2020, the Company has not made any borrowings under the Existing Credit Facility. Borrowings under the Existing Credit Facility are payable on the Maturity Date. Borrowings bear interest at LIBOR (with a 0.5% floor) plus 1.75%. The interest rate for undrawn amounts is 0.25%.
9. RELATED PARTY TRANSACTIONS
Tulco, LLC (Tulco) is the majority stockholder of the Company. Tulco paid for certain of the Companys professional fees which were expensed as incurred in the year ended December 31, 2019 and amounted to $0.1 million. These were reimbursed by the Company in 2020 and are recorded within accrued expenses on the accompanying balance sheet as of December 31, 2019.
On May 14, 2018, the Company entered into a common stock purchase agreement with Tulco pursuant to which the Company issued and sold 36,675,000 shares of common stock for a total purchase price of $50.0 million. As consideration, May 14, 2019, Tulco paid $17.5 million in cash and cancelled the $2.5 million owed by the Company to Tulco pursuant to a promissory note dated as of February 22, 2018. The remaining $30.0 million of capital contributions were payable upon the Companys achievement of certain milestones at defined dates in the years ended December 31, 2018 and December 31, 2019. During the year ended December 31, 2018, $16.0 million of contributions were made. The remaining $14.0 million contribution was made in the year ended December 31, 2019.
In 2020, the Company sold $4.2 million of masks and other products to Tulco, the amounts of which are included in net revenues for the year ended December 31, 2020.
10. COMMITMENTS AND CONTINGENCIES
Taxes on Remote Sellers
As discussed in Note 2, the Company is subject to state laws or administrative practices with respect to the taxes on remote sellers. In accordance with ASC 450, Contingencies, the Company recorded $1.6 million and $1.9 million within sales tax payable on the Companys balance sheets as of December 31, 2019 and 2020, respectively, as an estimate of contingent sales tax payable.
Operating Leases
The Company leases its office facilities and certain office equipment under non-cancelable operating leases that expire on various dates through December 2029. During the years ended December 31, 2019 and 2020, the Company recorded rent expense of $1.9 million and $1.8 million, respectively.
F-17
Future minimum lease payments under non-cancelable operating leases for the years succeeding December 31, 2020 are as follows (in thousands):
2021 |
$ | 1,941 | ||
2022 |
1,963 | |||
2023 |
2,023 | |||
2024 |
2,093 | |||
2025 |
2,166 | |||
Thereafter |
9,448 | |||
|
|
|||
$ | 19,634 |
Inventory Purchase Obligations
Inventory purchase obligations as of December 31, 2020 were approximately $33.8 million. These inventory purchase obligations can be impacted by various factors, including the timing of issuing orders and the timing of the shipment of orders.
Legal Contingencies
Legal claims may arise from time to time in the normal course of business, the results of which may have a material effect on the Companys accompanying financial statements. The Company currently has legal actions against it with respect to its litigation with Strategic Partners, Inc. The Company believes the claims are without basis or merit, and intends to vigorously defend against such claims. Accordingly, an accrual for any potential liability has not been recorded.
11. INCOME TAXES
The current and deferred income tax provision as of December 31, 2019 was $0. The provision for income taxes for the year ended December 31, 2020 is as follows (in thousands):
Year Ended December 31, |
||||
2020 | ||||
Current income tax provision |
||||
Federal |
$ | 9,087 | ||
State |
5,738 | |||
|
|
|||
Total current provision |
14,825 | |||
|
|
|||
Deferred income tax benefit |
||||
Federal |
(3,504 | ) | ||
State |
(3,003 | ) | ||
|
|
|||
Total deferred benefit |
(6,507 | ) | ||
|
|
|||
Provision for income taxes |
$ | 8,318 | ||
|
|
On March 18, 2020, the Families First Coronavirus Response Act (FFCR Act), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The FFCR Act and CARES Act did not have a material impact on the Companys financial statements as of December 31, 2020;
F-18
however, the Company continues to examine the impacts the FFCR Act and CARES Act may have on its business, results of operations, financial condition, liquidity and related disclosures.
On June 29, 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022. In connection with A.B. 85, the Company was not able to offset its California taxable income with its net operating losses for the year ended December 31, 2020.
A reconciliation from the income tax expense using the US statutory federal income tax rate to the provision for income taxes is as follows (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Tax at U.S. statutory rate |
$ | 23 | $ | 12,196 | ||||
State taxes, net of federal benefit |
| 4,176 | ||||||
Non-deductible expenses |
| (2,116 | ) | |||||
Change in valuation allowance |
(75 | ) | (5,994 | ) | ||||
Other |
52 | 56 | ||||||
|
|
|
|
|||||
Provision for income taxes |
$ | | $ | 8,318 | ||||
|
|
|
|
The effective tax rate for years ending December 31, 2019 and 2020 was 0% and 14.3%, respectively. For the year ended December 31, 2019, there was no income tax provision recorded, as the Company recorded a full valuation allowance on its net deferred tax asset and utilized net operating loss carryforwards to offset current taxes payable. During 2019, the Company weighed all available positive and negative evidence and determined that it was more likely than not that the deferred tax assets were not fully realizable. The Company determined during 2020 that all the deferred tax assets were realizable due to the Company now being in a three year cumulative pretax book income position, resulting in the full release in the valuation allowance. As of December 31, 2020, the Company has recorded a valuation allowance of $0, which is a decrease of $6.0 million from December 31, 2019. The 2020 income tax provision is a result of the current earnings of the Company, offset by the stock-based compensation permanent adjustment and the tax benefit from the release in valuation allowance.
F-19
Significant components of the deferred income taxes are as follows (in thousands):
December 31, | ||||||||
2019 | 2020 | |||||||
Deferred tax assets |
||||||||
Net operating losses |
$ | 3,710 | $ | 1,490 | ||||
Uniform capitalization adjustment to inventory |
539 | 1,135 | ||||||
Stock-based compensation |
137 | 1,503 | ||||||
Accrued compensation and benefits |
475 | 1,032 | ||||||
Tenant improvement allowance |
510 | 459 | ||||||
Inventory reserve |
142 | 991 | ||||||
Deferred rent |
297 | 564 | ||||||
Returns reserve |
217 | 469 | ||||||
Sales tax accrual |
457 | 528 | ||||||
Other |
145 | 148 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
6,629 | 8,319 | ||||||
Less: valuation allowance |
(5,994 | ) | | |||||
|
|
|
|
|||||
Total net deferred tax assets |
635 | 8,319 | ||||||
Deferred Tax Liabilities |
||||||||
Property and equipment |
(635 | ) | (1,812 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
(635 | ) | (1,812 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
$ | | $ | 6,507 | ||||
|
|
|
|
As of December 31, 2020, the Company had available federal net operating loss (NOL) carryforwards of approximately $1.8 million, which begin to expire in 2034. The Company also has available state NOL carryforwards of approximately $16.0 million as of December 31, 2020, which begin to expire in 2033. The majority of the state NOL carryforwards relate to the state of California. The utilization of California NOL carryforwards has been suspended by state legislation for tax years beginning before January 1, 2023. Years ending December 31, 2014 through December 31, 2019 remain open and subject to audit.
The Company had no material unrecognized tax benefits as of December 31, 2019 and 2020. The Companys policy is to recognize interest and penalties accrued on the unrecognized tax liability as income tax expense. During the years ended December 31, 2019 and 2020, there were no such interest and penalties.
12. STOCK-BASED COMPENSATION
2016 Stock Incentive Plan
The Companys 2016 Stock Incentive Plan (the 2016 Plan) provides for the Company to issue restricted stock, RSUs, stock appreciation rights, incentive stock options, non-statutory stock options and other stock-based awards to employees, officers, members of the Board of Directors (the Board), consultants and advisors of the Company.
All options and awards typically expire ten years from the date of grant if not exercised. In the event of a termination of employment, all unvested options will be forfeited immediately. Any vested options may be exercised within three months, depending on the circumstances of termination, and except for instances of termination with cause whereby any vested options or awards are forfeited immediately.
Shares that expire, are terminated, surrendered or canceled under the 2016 Plan without having been exercised are available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future awards. The 2016 Plan is administered by the Board.
F-20
During the years ended December 31, 2019 and 2020, the Company granted stock options to purchase 672,120 and 25,928,154 shares of common stock, respectively. Also, during the year ended December 31, 2020, the Company granted 5,410,440 RSUs, which have both time-based and performance-based vesting conditions, all of which remain unvested as of December 31, 2020.
Under the Plan, up to 51,716,934 shares of common stock of the Company may be awarded through the granting of one or more of the following types of awards: (a) nonqualified stock options, (b) qualified stock options (c) RSU awards, (d) restricted stock awards and (e) stock appreciation rights. To date, the Company has granted nonqualified and qualified stock options with vesting periods of two to five years. The Company issues new common stock upon exercise of stock options. As of December 31, 2019 and 2020, the number of shares available for issuance under the Plan were 1,318,986 and 5,028,687, respectively.
Stock Option Valuation
The assumptions that the Company used to determine the grant date fair value of stock options granted were as follows, presented on a weighted-average basis:
December 31, | ||||
2019 | 2020 | |||
Risk free interest rate |
1.81% | 0.42% | ||
Expected volatility |
57% | 44% | ||
Expected dividend yield |
0% | 0% | ||
Expected term (in years) |
6.25 | 6.45 |
A summary of the stock option activity under the Plan, is as follows:
Stock Options Outstanding | ||||||||||||
Number of
Shares |
Weighted-
Average Exercise Price (per share) |
Weighted-
Average Remaining Contractual Term (in years) |
||||||||||
Outstanding at December 31, 2018 |
15,596,550 | $ | 0.83 | 9.25 | ||||||||
Granted |
672,120 | 0.46 | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
(707,400 | ) | 0.46 | |||||||||
|
|
|
|
|||||||||
Outstanding at December 31, 2019 |
15,561,270 | $ | 0.83 | 8.28 | ||||||||
|
|
|
|
|||||||||
Granted |
25,928,154 | 4.89 | ||||||||||
Exercised |
(1,391,868 | ) | 0.28 | |||||||||
Forfeited |
(260,361 | ) | 0.44 | |||||||||
|
|
|
|
|||||||||
Outstanding at December 31, 2020 |
39,837,195 | $ | 3.49 | 8.87 | ||||||||
|
|
|
|
|||||||||
Exercisable at December 31, 2019 |
7,597,683 | $ | 0.83 | 8.17 | ||||||||
|
|
|
|
|||||||||
Exercisable at December 31, 2020 |
11,421,063 | $ | 1.27 | 7.45 | ||||||||
|
|
|
|
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Companys common stock for those stock options that had exercise prices lower than the fair value of the common stock as of the end of the period. As of December 31, 2019, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $0.3 million and $0.2 million, respectively. As of December 31, 2020, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $100.8 million and $54.3 million, respectively. The aggregate intrinsic
F-21
value of stock options exercised during the year ended December 31, 2020 was $1.2 million. There were no exercises of stock options for the year ended December 31, 2019.
The weighted-average grant date fair values per share of the Companys stock options granted during the years ended December 31, 2019 and 2020 was $0.25 and $3.53, respectively. The fair value of stock options vested during the years ended December 31, 2019 and 2020 was $0.2 million and $4.8 million, respectively.
As of December 31, 2020, total unrecognized compensation cost related to the unvested stock option awards was $86.7 million, to be recognized over a weighted-average period of 4.5 years.
Restricted Stock Units
In 2020, the Company granted a total of 5,410,440 RSUs to employees which vest upon the satisfaction of both a service and a performance condition. The service condition for these awards is satisfied over four years. The performance condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or an IPO. As the performance condition is not considered probable of occurring, through December 31, 2020, the Company had not recognized any stock-based compensation expense related to these awards.
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the years ended December 31, 2019 and 2020 (in thousands, except share and per share amounts).
Years Ended December 31, | ||||||||
2019 | 2020 | |||||||
Numerator: |
||||||||
Net income basic and diluted |
$ | 112 | $ | 49,758 | ||||
Denominator: |
||||||||
Weighted-average sharesbasic |
153,052,983 | 153,327,308 | ||||||
Effect of dilutive stock options |
571,030 | 10,004,040 | ||||||
|
|
|
|
|||||
Weighted-average sharesdiluted |
153,624,013 | 163,331,348 | ||||||
|
|
|
|
|||||
Earnings per share: |
||||||||
Basic earnings per share |
$ | | $ | 0.32 | ||||
Effect of dilutive stock options |
| (0.02 | ) | |||||
Diluted earnings per share |
$ | | $ | 0.30 |
The Company excluded the following from the computation of diluted earnings per share for the years ended December 31, 2019 and 2020 because including them would have had an anti-dilutive effect:
Years Ended December 31, | ||||||||
2019 | 2020 | |||||||
Stock options to purchase common stock |
15,697,638 | 31,485,366 | ||||||
|
|
|
|
The Company also had RSUs outstanding as of December 31, 2020, which include a performance based vesting condition satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or an IPO. Because the necessary conditions for the vesting of the restricted stock had not been satisfied as of December 31, 2020, the Company has excluded the RSUs from the table above as of December 31, 2020 and the calculation of diluted net income per share for the year ended December 31, 2020.
F-22
14. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution 401(k) plan for the benefit of all employees who have met the eligibility requirements. Participants may contribute up to 100% of their eligible compensation, subject only to annual limitations set by the Internal Revenue Service. In 2019 and 2020, the Company matched 100% of the participant contributions, up to the first 6% of the participants deferrals. For the years ended December 31, 2019 and 2020, the Company recorded expense for matching contributions of $0.3 million and $0.6 million, respectively, within general and administrative expenses on the Companys statements of income and comprehensive income.
15. SUBSEQUENT EVENTS
Management has evaluated subsequent events occurring through March 17, 2021, the date that these financial statements were issued, and with respect to the stock split discussed in Note 2, through May 20, 2021, and determined that no additional subsequent events occurred that would require recognition or disclosure in these financial statements.
F-23
FIGS, INC.
(In thousands, except share and per share data)
As of | ||||||||
December 31, | March 31, | |||||||
2020 | 2021 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 58,133 | $ | 73,837 | ||||
Accounts receivable |
5,780 | 3,549 | ||||||
Inventory, net |
49,735 | 65,170 | ||||||
Prepaid expenses and other current assets |
6,665 | 3,762 | ||||||
|
|
|
|
|||||
Total current assets |
120,313 | 146,318 | ||||||
Non-current assets |
||||||||
Property and equipment, net |
6,529 | 6,582 | ||||||
Deferred tax assets |
6,507 | 6,054 | ||||||
Other assets |
506 | 2,286 | ||||||
|
|
|
|
|||||
Total non-current assets |
13,542 | 14,922 | ||||||
|
|
|
|
|||||
Total assets |
$ | 133,855 | $ | 161,240 | ||||
|
|
|
|
|||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 11,965 | $ | 16,051 | ||||
Accrued expenses |
6,682 | 14,736 | ||||||
Accrued compensation and benefits |
4,214 | 2,086 | ||||||
Sales tax payable |
3,076 | 4,011 | ||||||
Gift card liability |
3,019 | 2,877 | ||||||
Deferred revenue |
1,781 | 278 | ||||||
Returns reserve |
1,677 | 1,973 | ||||||
Income tax payable |
105 | 1,340 | ||||||
|
|
|
|
|||||
Total current liabilities |
32,519 | 43,352 | ||||||
Non-current liabilities |
||||||||
Deferred rent and lease incentive |
3,659 | 3,633 | ||||||
|
|
|
|
|||||
Total liabilities |
36,178 | 46,985 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Common stockpar value $0.0001 per share, 207,000,000 shares authorized as of December 31, 2020 and March 31, 2021 (unaudited); 154,444,851 and 154,649,160 shares issued and outstanding as of December 31, 2020 and March 31, 2021 (unaudited), respectively |
15 | 15 | ||||||
Additional paid-in capital |
70,175 | 75,313 | ||||||
Retained earnings |
27,487 | 38,927 | ||||||
|
|
|
|
|||||
Total stockholders equity |
97,677 | 114,255 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 133,855 | $ | 161,240 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
F-24
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2020 | 2021 | |||||||
Net revenues |
$ | 31,967 | $ | 87,079 | ||||
Cost of goods sold |
7,655 | 24,719 | ||||||
|
|
|
|
|||||
Gross profit |
24,312 | 62,360 | ||||||
Operating expenses |
||||||||
Selling |
6,739 | 17,114 | ||||||
Marketing |
7,337 | 10,840 | ||||||
General and administrative |
6,200 | 18,346 | ||||||
|
|
|
|
|||||
Total operating expenses |
20,276 | 46,300 | ||||||
|
|
|
|
|||||
Net income from operations |
4,036 | 16,060 | ||||||
Other income (loss), net |
||||||||
Interest income (expense) |
98 | (36 | ) | |||||
Other expense |
| (2 | ) | |||||
|
|
|
|
|||||
Total other income (loss), net |
98 | (38 | ) | |||||
|
|
|
|
|||||
Net income before provision for income taxes |
4,134 | 16,022 | ||||||
Provision for income taxes |
| 4,582 | ||||||
Net income and comprehensive income |
$ | 4,134 | $ | 11,440 | ||||
|
|
|
|
|||||
Basic earnings per share |
$ | 0.03 | $ | 0.07 | ||||
|
|
|
|
|||||
Diluted earnings per share |
$ | 0.03 | $ | 0.07 | ||||
|
|
|
|
|||||
Weighted-average shares outstandingbasic |
153,052,983 | 154,501,660 | ||||||
|
|
|
|
|||||
Weighted-average shares outstandingdiluted |
153,655,166 | 168,012,364 | ||||||
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
F-25
FIGS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data)
(Unaudited)
Common Stock |
Additional
Paid-in Capital |
(Accumulated
Deficit) Retained Earnings |
Total
Stockholders Equity |
|||||||||||||||||
Shares | Amount | |||||||||||||||||||
December 31, 2019 |
153,052,983 | 15 | $ | 61,070 | $ | (22,271 | ) | $ | 38,814 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Stock-based compensation |
| | 50 | | 50 | |||||||||||||||
Net income |
| | | 4,134 | 4,134 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
March 31, 2020 |
153,052,983 | 15 | $ | 61,120 | $ | (18,137 | ) | $ | 42,998 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2020 |
154,444,851 | 15 | $ | 70,175 | $ | 27,487 | $ | 97,677 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Stock-based compensation |
| | 5,015 | | 5,015 | |||||||||||||||
Stock option exercises |
204,309 | | 123 | | 123 | |||||||||||||||
Net income |
| | | 11,440 | 11,440 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
March 31, 2021 |
154,649,160 | 15 | $ | 75,313 | $ | 38,927 | $ | 114,255 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
F-26
FIGS, INC.
(In thousands)
(Unaudited)
Three Months Ended
March 31, |
||||||||
2020 | 2021 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 4,134 | $ | 11,440 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
Depreciation and amortization expense |
218 | 318 | ||||||
Provision for deferred income taxes |
| 453 | ||||||
Stock-based compensation |
50 | 5,015 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,122 | ) | 2,231 | |||||
Inventory |
(1,466 | ) | (15,435 | ) | ||||
Prepaid expenses and other current assets |
(494 | ) | 2,902 | |||||
Other assets |
(46 | ) | (1,785 | ) | ||||
Accounts payable |
(2,164 | ) | 4,249 | |||||
Accrued expenses |
203 | 8,054 | ||||||
Deferred revenue |
448 | (1,503 | ) | |||||
Accrued compensation and benefits |
(874 | ) | (2,128 | ) | ||||
Returns reserve |
168 | 296 | ||||||
Sales tax payable |
(53 | ) | 935 | |||||
Income tax payable |
| 1,235 | ||||||
Gift card liability |
(26 | ) | (142 | ) | ||||
Deferred rent and lease incentive |
203 | (26 | ) | |||||
|
|
|
|
|||||
Net cash (used in) provided by operating activities |
(821 | ) | 16,109 | |||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(972 | ) | (528 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(972 | ) | (528 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from stock option exercises |
| 123 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
| 123 | ||||||
Net (decrease) increase in cash and cash equivalents |
(1,793 | ) | 15,704 | |||||
Cash and cash equivalents, beginning of period |
38,353 | 58,133 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 36,560 | $ | 73,837 | ||||
|
|
|
|
|||||
Supplemental disclosures: |
||||||||
Property and equipment included in accounts payable and accrued expenses |
$ | | $ | 73 | ||||
|
|
|
|
|||||
Deferred offering costs included in accounts payable and accrued expenses |
$ | | $ | 1,796 | ||||
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
F-27
FIGS, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. |
DESCRIPTION OF BUSINESS |
FIGS, Inc. (the Company), a Delaware Corporation, was founded in 2013 and is a founder-led, direct-to-consumer healthcare apparel and lifestyle brand company. The Company designs and sells healthcare apparel and other non-scrub offerings, such as lab coats, underscrubs, outerwear, activewear, loungewear, compression socks footwear, masks and face shields. The Company markets and sells its products primarily in the United States. Sales are primarily generated through the Companys digital platforms.
Impact of COVID-19
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.
In response to public health directives and orders, and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work from home policies for certain employees. The COVID-19 pandemic has the potential to significantly impact the Companys manufacturing supply chain, distribution, logistics and other services. Certain of the Companys suppliers experienced delays and shut-downs due to the COVID-19 pandemic. In order to manage the impact of these disruptions and meet its customers expectations, the Company increased the use of more costly air freight during 2020 and during the three months ended March 31, 2021, which increased cost of goods sold. The Company has not experienced the pandemics adverse impacts in any additional material respect.
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying unaudited financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Our fiscal year ends on December 31. Certain information and footnote disclosures normally included in the Companys annual audited financial statements and accompanying notes have been condensed or omitted in these accompanying interim financial statements and footnotes. These unaudited interim financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2020 included elsewhere in this prospectus.
In our opinion, the unaudited interim financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position, results of operations, and cash flows. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
Stock Split
On May 19, 2021, the Company effected a nine-for-one forward stock split of its issued and outstanding common stock, stock options and RSUs. Accordingly, all share and per share information has been retroactively adjusted to reflect the stock split for all periods presented.
F-28
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Significant estimates include, but are not limited to, the valuation of the net realizable value of inventory, reserves for sales returns, allowances for doubtful accounts, stock-based compensation, contingent sales tax liability, and the useful lives and recoverability of long-lived assets. Actual results could differ from those estimates.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with an in-process equity offering as deferred costs until such offering is consummated. After consummation of the equity offering, these costs will be recorded in stockholders equity as a reduction of proceeds generated as a result of the offering.
Should a planned equity offering be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the statement of income and comprehensive income. The Company recorded deferred offering costs of $1.9 million as of March 31, 2021, which are included in other assets. There were no deferred offering costs capitalized as of December 31, 2020.
Inventory, Net
Inventory consists of finished goods and is accounted for using an average cost method. Inventory is valued at the lower of cost or net realizable value. The Company records a provision for excess and obsolete inventory to adjust the carrying value of inventory based on assumptions regarding future demand for the Companys products.
Lower of cost or net realizable value is evaluated by considering obsolescence, excessive levels of inventory, deterioration, and other factors. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence, or impaired inventory. Excess and obsolete inventory is charged to cost of goods sold.
The Company recorded an allowance to write down inventory of $0.8 million, and $0.3 million as of December 31, 2020, and March 31, 2021, respectively, to reduce inventory to the lower of cost or to its net realizable value.
Revenue Recognition
The Company recognizes revenues in accordance with Financial Accounting Standards Board (FASB) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASC 606). Revenue is recognized in an amount that reflects the consideration expected to be received in exchange for products. To determine revenue recognition for contracts with customers within the scope of ASC 606, the Company recognizes revenue from the commercial sales of products and contracts by applying the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the good or services it transfers to the customer. The Company recognizes revenue at a point in time when it satisfies a performance obligation and transfers control of
F-29
the products to the respective customers, which occurs when the goods are transferred to a common carrier. Shipping and handling costs associated with outbound freight incurred to transfer a product to a customer are treated as a fulfillment activity, and as a result, any fees received from customers are included in the transaction price for the performance obligation of providing goods to the customer.
The Company generally provides refunds for goods returned within 30 days from the original purchase date. A returns reserve is recorded by the Company based on the historical refund pattern. The returns reserve in the balance sheets was $1.7 million and $2.0 million as of December 31, 2020 and March 31, 2021, respectively.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. The Company records deferred revenue when it receives payments in advance of the transfer of the goods to a common carrier. The amounts recorded are expected to be recognized as revenue within the 12 months following the balance sheet and, therefore, are classified as current liabilities in the balance sheets.
The Company does not have significant contract balances other than deferred revenue, the allowance for sales returns and liabilities related to its gift cards. The Company does not have significant contract acquisition costs.
The following table presents the disaggregation of the Companys net revenues for the three months ended March 31, 2020 and 2021 (in thousands):
Three Months Ended
March 31, |
||||||||
2020 | 2021 | |||||||
By geography: |
||||||||
United States |
$ | 31,577 | $ | 81,607 | ||||
Rest of the world |
390 | 5,472 | ||||||
|
|
|
|
|||||
$ | 31,967 | $ | 87,079 | |||||
|
|
|
|
|||||
By product: |
||||||||
Scrubs |
$ | 28,552 | $ | 76,215 | ||||
Non-scrubs |
3,415 | 10,864 | ||||||
|
|
|
|
|||||
$ | 31,967 | $ | 87,079 | |||||
|
|
|
|
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement, (ASU 2018-13). This update removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company has adopted this update as of January 1, 2020 and noted no effect on the financial statements and related disclosures.
F-30
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016- 02, Leases (Topic 842), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard also requires lessees to recognize operating and finance lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company is required to adopt the standard on January 1, 2022 and is currently evaluating the impact that ASU 2016-02 will have on the financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) (ASU 2016-13). ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact that ASU 2016-13 will have on the financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This update is effective for entities other than public business entities, including emerging growth companies that elected to defer compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards, for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that ASU 2019-12 will have on the financial statements and related disclosures.
3. |
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
As of December 31, 2020 and March 31, 2021, the Companys cash equivalents consisted of money market funds, classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets without any valuation adjustment (in thousands).
Fair Value Measurement as of
December 31, 2020 |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Money market funds |
$ | 50,219 | $ | | $ | | $ | 50,219 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 50,219 | $ | | $ | | $ | 50,219 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair Value Measurement as of
March 31, 2021 |
||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets |
||||||||||||||||
Money market funds |
$ | 50,229 | $ | | $ | | $ | 50,229 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 50,229 | $ | | $ | | $ | 50,229 | |||||||||
|
|
|
|
|
|
|
|
There were no transfers of assets between fair value levels during the three months ended March 31, 2020 or the three months ended March 31, 2021. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
F-31
4. |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following (in thousands):
December 31,
2020 |
March 31,
2021 |
|||||||
Inventory deposits |
$ | 963 | $ | 550 | ||||
Prepaid expenses |
1,406 | 1,811 | ||||||
Prepaid taxes |
3,493 | 599 | ||||||
Sample kits |
33 | | ||||||
Other prepaid expenses and current assets |
770 | 802 | ||||||
|
|
|
|
|||||
$ | 6,665 | $ | 3,762 | |||||
|
|
|
|
5. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consists of the following (in thousands):
December 31,
2020 |
March 31,
2021 |
|||||||
Furniture and fixtures |
$ | 808 | $ | 830 | ||||
Office equipment |
765 | 770 | ||||||
Machinery and equipment |
752 | 752 | ||||||
Computer equipment |
610 | 683 | ||||||
Software and website design |
1,704 | 2,227 | ||||||
Leasehold improvements |
3,017 | 3,017 | ||||||
Capital projects in progress |
312 | 55 | ||||||
|
|
|
|
|||||
Total property and equipment |
7,968 | 8,334 | ||||||
Less: accumulated depreciation and amortization |
(1,439 | ) | (1,752 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 6,529 | $ | 6,582 | ||||
|
|
|
|
Depreciation and amortization expense for the three months ended March 31, 2020 and 2021 on property and equipment was $0.2 million and $0.3 million, respectively.
6. |
ACCRUED EXPENSES |
Accrued expenses consist of the following (in thousands):
December 31,
2020 |
March 31,
2021 |
|||||||
Accrued inventory |
$ | 3,151 | $ | 7,047 | ||||
Accrued shipping |
656 | 931 | ||||||
Accrued selling expenses |
1,394 | 1,482 | ||||||
Accrued legal expenses |
986 | 2,962 | ||||||
Credit card liabilities |
276 | 495 | ||||||
Other accrued expenses |
219 | 1,819 | ||||||
|
|
|
|
|||||
$ | 6,682 | $ | 14,736 | |||||
|
|
|
|
7. |
FINANCING ARRANGEMENTS |
On September 5, 2017, the Company, as borrower, entered into a credit agreement with First Choice Bank, as lender, administrative agent and promissory note issuer for a $5.0 million revolving credit facility (the Prior
F-32
Credit Facility). On October 5, 2018, the principal amount of the Prior Credit Facility was increased to $10.0 million. On January 7, 2019, the Company amended the Prior Credit Facility to extend the maturity date to January 12, 2022 and carved out of the Prior Credit Facility two standby letters of credit. The Company had letters of credit aggregating to $2.3 million as of December 31, 2019. Availability under the Credit Facility was $7.7 million as of December 31, 2019. On January 10, 2020, the Company amended and extended a letter of credit, increasing the aggregate of letters of credit to $2.4 million. In December 2020, the Prior Credit Facility was terminated.
On December 2, 2020, the Company, as borrower, entered into a credit agreement with JPMorgan Chase Bank, N.A. for an initial $50.0 million revolving credit facility (including capacity to issue letters of credit (the Existing Credit Facility). The Existing Credit Facility has a maturity date of December 2, 2025 (Maturity Date). Subject to certain conditions, the Existing Credit Facility also provides for an additional $25.0 million of capacity. The Company had letters of credit aggregating to $3.2 million outstanding under the Existing Credit Facility as of March 31, 2021. As of March 31, 2021, the Company has not made any borrowings under the Existing Credit Facility. Borrowings under the Existing Credit Facility are payable on the Maturity Date. Borrowings bear interest at LIBOR (with a 0.5% floor) plus 1.75%. The interest rate for undrawn amounts is 0.25%.
8. |
COMMITMENTS AND CONTINGENCIES |
Taxes on Remote Sellers
The Company is subject to state laws or administrative practices with respect to the taxes on remote sellers. In accordance with ASC 450, Contingencies, the Company recorded $1.9 million and $1.8 million within sales tax payable on the Companys balance sheets as of December 31, 2020 and March 31, 2021, respectively, as an estimate of contingent sales tax payable.
Operating Leases
The Company leases its office facilities and certain office equipment under non-cancelable operating leases that expire on various dates through December 2029. During the three months ended March 31, 2020 and 2021, the Company recorded rent expense of $0.5 million and $0.4 million, respectively.
Future minimum lease payments under non-cancelable operating leases subsequent to March 31, 2021 are as follows (in thousands):
2021 |
$ | 1,431 | ||
2022 |
1,963 | |||
2023 |
2,023 | |||
2024 |
2,093 | |||
2025 |
2,166 | |||
Thereafter |
9,448 | |||
|
|
|||
$ | 19,124 |
Inventory Purchase Obligations
Inventory purchase obligations as of March 31, 2021 were approximately $18.1 million. These inventory purchase obligations can be impacted by various factors, including the timing of issuing orders and the timing of the shipment of orders.
Legal Contingencies
Legal claims may arise from time to time in the normal course of business, the results of which may have a material effect on the Companys accompanying financial statements. The Company currently has legal
F-33
actions against it with respect to its litigation with Strategic Partners, Inc. The Company believes the claims are without basis or merit and intends to vigorously defend against such claims. Accordingly, an accrual for any potential liability has not been recorded.
9. |
INCOME TAXES |
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items arising during interim periods.
For the three months ended March 31, 2020, the Companys effective tax rate was 0% due to the full valuation allowance on its deferred tax assets. The Companys effective tax rate was 28.6% for the three months ended March 31, 2021. The Companys effective tax rate differs from the U.S. statutory tax rate primarily due to state taxes, the permanent disallowance of stock-based compensation expense for tax purposes and the impact of other discrete items, including certain transaction expenses.
The Company did not incur income tax expense for the three months ended March 31, 2020. The Company recorded income tax expense of $4.6 million for the three months ended March 31, 2021.
10. |
STOCK-BASED COMPENSATION |
During the three months ended March 31, 2020, the Company did not grant stock options to purchase shares of common stock. During the three months ended March 31, 2021, the Company granted stock options to purchase 882,126 shares of common stock.
Under the 2016 Plan, up to 51,716,934 shares of common stock of the Company may be awarded through the granting of one or more of the following types of awards: (a) nonqualified stock options, (b) qualified stock options (c) RSU awards, (d) restricted stock awards and (e) stock appreciation rights. To date, the Company has granted nonqualified and qualified stock options with vesting periods of two to five years. The Company issues new common stock upon exercise of stock options. As of December 31, 2020 and March 31, 2021, the number of shares available for issuance under the Plan were 5,028,687 and 4,416,723, respectively.
Stock Options
A summary of the stock option activity under the Plan, is as follows:
Stock Options Outstanding | ||||||||||||
Number of
Shares |
Weighted
Average Exercise Price (per share) |
Weighted
Average Remaining Contractual Term (in years) |
||||||||||
Outstanding at December 31, 2019 |
15,561,270 | $ | 0.83 | 8.28 | ||||||||
Granted |
| | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
(103,500 | ) | 0.46 | |||||||||
|
|
|
|
|||||||||
Outstanding at March 31, 2020 |
15,457,770 | $ | 0.83 | 8.03 | ||||||||
Outstanding at December 31, 2020 |
39,837,195 | $ | 3.49 | 8.87 | ||||||||
|
|
|
|
|||||||||
Granted |
882,126 | 9.32 | ||||||||||
Exercised |
(204,309 | ) | 0.60 | |||||||||
Forfeited |
(270,162 | ) | 1.13 | |||||||||
|
|
|
|
|||||||||
Outstanding at March 31, 2021 |
40,244,850 | $ | 3.65 | 8.65 | ||||||||
|
|
|
|
F-34
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Companys common stock for those stock options that had exercise prices lower than the fair value of the common stock as of the end of the period. As of March 31, 2021, the aggregate intrinsic value of stock options outstanding and stock options exercisable was $311.6 million and $136.2 million, respectively. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 was $1.8 million.
The weighted-average grant date fair value per share of the Companys stock options granted during the three months ended March 31, 2021 was $5.96. The fair value of stock options vested during the three months ended March 31, 2020 and 2021 was $0.1 million and $4.4 million, respectively.
As of March 31, 2021, total unrecognized compensation cost related to unvested stock option awards was $86.4 million, to be recognized over a weighted-average period of 4.3 years.
Restricted Stock Units
In 2020, the Company granted a total of 5,410,440 RSUs to employees which vest upon the satisfaction of both a service and a performance condition. The service condition for these awards is satisfied over four years. The performance condition is satisfied upon the occurrence of a qualifying event, defined as a change of control transaction or an IPO. As the performance condition is not considered probable of occurring, through March 31, 2021, the Company has not recognized stock-based compensation expense related to these awards. The Company did not grant any RSUs during the three months ended March 31, 2020 and 2021.
11. |
EARNINGS PER SHARE |
The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the weighted average number of common and common equivalent shares outstanding for the three months ended March 31, 2020 and 2021 (in thousands, except share and per share amounts).
Three Months Ended March 31, | ||||||||
2020 | 2021 | |||||||
Numerator: |
||||||||
Net income basic and diluted |
$ | 4,134 | $ | 11,440 | ||||
Denominator: |
||||||||
Weighted-average sharesbasic |
153,052,983 | 154,501,660 | ||||||
Effect of dilutive stock options |
602,183 | 13,510,704 | ||||||
|
|
|
|
|||||
Weighted-average sharesdiluted |
153,655,166 | 168,012,364 | ||||||
|
|
|
|
|||||
Earnings per share: |
||||||||
Basic earnings per share |
$ | 0.03 | $ | 0.07 | ||||
Effect of dilutive stock options |
| | ||||||
Diluted earnings per share |
$ | 0.03 | $ | 0.07 |
The Company excluded the following from the computation of diluted earnings per share for the three months ended March 31, 2020 and 2021 because including them would have had an anti-dilutive effect:
Three Months Ended March 31, | ||||||||
2020 | 2021 | |||||||
Stock options to purchase common stock |
14,959,087 | 27,208,611 | ||||||
|
|
|
|
The Company had 5,410,440 RSUs outstanding as of March 31, 2021, which include a service and performance-based vesting condition satisfied upon the occurrence of a qualifying event, defined as a change of
F-35
control transaction or an IPO. Because the necessary condition for the performance vesting of the restricted stock units was not satisfied as of March 31, 2021, the Company has excluded the RSUs from the calculation of diluted earnings per share for the three months ended March 31, 2021.
12. |
EMPLOYEE BENEFIT PLAN |
The Company maintains a defined contribution 401(k) plan for the benefit of all employees who have met the eligibility requirements. Participants may contribute up to 100% of their eligible compensation, subject only to annual limitations set by the Internal Revenue Service. The Company matches 100% of participant contributions, up to the first 6% of a participants plan compensation. For the three months ended March 31, 2020 and 2021, the Company recorded expense for matching contributions of $0.1 million and $0.2 million, respectively, within general and administrative expenses on the Companys statements of income and comprehensive income.
13. |
SUBSEQUENT EVENTS |
Management has evaluated subsequent events occurring through May 5, 2021, the date that these financial statements were originally issued, and with respect to the below subsequent events, through May 20, 2021.
Forward Stock Split
On May 19, 2021 the Company effected a 9-for-1 forward stock split of its capital stock. All share and per share information have been retroactively adjusted to reflect the stock split for all periods presented.
Amended and Restated Certificate of Incorporation
On May 18, 2021, the Board approved the Amended and Restated Certificate of Incorporation, which will become effective upon the completion of this offering, to authorize the increase of shares of the Companys capital stock to 1,250,000 shares, with a par value of $0.0001, of which 1,000,000,000 shares are designated as Class A common stock, 150,000,000 shares are designated as Class B common stock and 100,000,000 shares are designated as preferred stock.
Exchange Transactions
On May 18, 2021, the Board approved an exchange agreement to be entered into by the Company, Ms. Hasson, Ms. Spear, Tulco, LLC and certain related entities pursuant to which certain shares of Class A common stock held by these stockholders will be exchanged for an equivalent number of shares of Class B common stock in connection with the completion of this offering. In addition, on May 18, 2021, the Board approved an equity award exchange right agreement to be entered into by the Company, Ms. Hasson and Ms. Spear, pursuant to which each of Ms. Hasson and Ms. Spear shall have a right to require the Company to exchange any shares of Class A common stock received upon the exercise of stock options or the vesting and settlement of RSUs, in each case granted under the 2016 Plan and outstanding prior to the date of effectiveness of the registration statement of which this prospectus forms a part, for an equivalent number of shares of Class B common stock. The Equity Award Exchange Agreement does not cover any equity awards granted to Ms. Hasson or Ms. Spear in connection with or following the completion of this offering.
Equity Incentive Plans and Employee Stock Purchase Plan
On May 18, 2021, the Board adopted and the stockholders of the Company approved the 2021 Equity Incentive Plan (the 2021 Plan) and the 2021 Employee Stock Purchase Plan (the ESPP). It is intended that the initial share reserves under the 2021 Plan and the ESPP will be equal to 5% and 1%, respectively, of the number of shares of the Companys outstanding capital stock upon completion of this offering (which, for the 2021 Plan, generally will be calculated on a fully diluted basis). The Board also approved the termination of the 2016 Plan, which will be effective on the date the 2021 Plan becomes effective. Any remaining shares of common stock available for issuance under the 2016 Plan will be added to the shares of our Class A common stock reserved for issuance under the 2021 Plan.
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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 expenses to be paid by us, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the NYSE listing fee.
Amount | ||||
Securities and Exchange Commission registration fee |
$ | 53,637 | ||
FINRA filing fee |
74,244 | |||
NYSE initial listing fee |
150,000 | |||
Accountants fees and expenses |
1,700,000 | |||
Legal fees and expenses |
2,500,000 | |||
Blue Sky fees and expenses |
15,000 | |||
Transfer Agents fees and expenses |
4,000 | |||
Printing and engraving expenses |
585,000 | |||
Miscellaneous |
418,119 | |||
|
|
|||
Total expenses |
$ | 5,500,000 | ||
|
|
Item 14. |
Indemnification of Directors and Officers. |
The Registrant is governed by the Delaware General Corporation Law, or DGCL. Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was or is an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the corporations best interest and, for criminal proceedings, had no reasonable cause to believe that such persons conduct was unlawful. A Delaware corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or contemplated action or suit by or in the right of such corporation, under the same conditions, except that such indemnification is limited to expenses (including attorneys fees) actually and reasonably incurred by such person, and except that no indemnification is permitted without judicial approval if such person is adjudged to be liable to such corporation. Where an officer or director of a corporation is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to above, or any claim, issue or matter therein, the corporation must indemnify that person against the expenses (including attorneys fees) which such officer or director actually and reasonably incurred in connection therewith.
The Registrants amended and restated certificate of incorporation will authorize the indemnification of its officers and directors, consistent with Section 145 of the DGCL.
Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the directors fiduciary duty, except (i) for any breach of the directors duty of loyalty to the corporation or its
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stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit.
We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers. In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act against certain liabilities.
Item 15. |
Recent Sales of Unregistered Securities. |
We have issued and sold the following securities:
1. |
In May 2018, we issued and sold to an accredited investor an aggregate of 36,675,000 shares of our common stock for a total purchase price of $50.0 million through cash payments totaling $47.5 million and the cancellation of a promissory note of $2.5 million. The average price per share was $1.36. |
2. |
Since January 1, 2018, we have granted stock options to employees and consultants, covering an aggregate of 45,083,574 shares of our common stock under our 2016 Equity Incentive Plan, at exercise prices ranging from $0.07 to $11.17 per share, and have issued 1,995,642 shares of common stock upon exercise of stock options under our 2016 Equity Incentive Plan with an aggregate exercise price of $475,008. |
3. |
Since January 1, 2018, we have granted restricted stock units to employees representing an aggregate of 5,410,440 shares of common stock under our 2016 Equity Incentive Plan. |
Unless otherwise stated, the issuances 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 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. Individuals who purchased securities as described above represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates issued in such transactions.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering.
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Item 16. |
Exhibits and Financial Statement Schedules. |
(a) |
Exhibits. |
The following documents are filed as exhibits to this registration statement.
II-3
* |
Previously filed. |
# |
Indicates management contract or compensatory plan. |
(b) |
Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. |
Item 17. |
Undertakings. |
The undersigned registrant hereby undertakes to provide to the underwriter, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter 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 Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) |
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(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 of 1933, as amended, the registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Monica, State of California, on this 20th day of May 2021.
FIGS, INC. | ||
By: |
/s/ Catherine Spear |
|
Name: | Catherine Spear | |
Title: | Co-Chief Executive Officer and Director |
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities held on the dates indicated.
Signature |
Title |
Date |
||
/s/ Heather Hasson Heather Hasson |
Co-Chief Executive Officer and Director (Co-Principal Executive Officer) |
May 20, 2021 | ||
/s/ Catherine Spear Catherine Spear |
Co-Chief Executive Officer and Director (Co-Principal Executive Officer) |
May 20, 2021 | ||
/s/ Jeffrey D. Lawrence Jeffrey D. Lawrence |
Chief Financial Officer (Principal Financial and Accounting Officer) |
May 20, 2021 | ||
* J. Martin Willhite |
Director |
May 20, 2021 |
*By: |
/s/ Catherine Spear |
|
Catherine Spear Attorney-in-Fact |
Exhibit 1.1
FIGS, Inc.
Class A Common Stock
Underwriting Agreement
May [●], 2021
Goldman Sachs & Co. LLC,
Morgan Stanley & Co. LLC,
As representatives (the Representatives) of the several Underwriters
named in Schedule I hereto,
c/o |
Goldman Sachs & Co. LLC |
200 West Street
New York, New York 10282
c/o |
Morgan Stanley & Co. LLC |
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
FIGS, Inc., a Delaware corporation (the Company), proposes, subject to the terms and conditions stated in this agreement (this Agreement), to issue and sell to the Underwriters named in Schedule I hereto (the Underwriters) an aggregate of [●] shares and, at the election of the Underwriters, up to [●] additional shares of Class A common stock, par value $0.0001 per share (Class A Common Stock), of the Company, and the stockholders of the Company named in Schedule II hereto (the Selling Stockholders) propose, subject to the terms and conditions stated in this this Agreement, to sell to the Underwriters an aggregate of [●] shares and, at the election of the Underwriters, up to [●] additional shares of Class A Common Stock. The aggregate of [●] shares of Class A Common Stock to be sold by the Company and the Selling Stockholders is herein called the Firm Shares and the aggregate of [●] additional shares to be sold by the Selling Stockholders is herein called the Optional Shares. The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the Shares. The shares of Class A Common Stock of the Company and the shares of Class B common stock, par value $0.0001 per share, of the Company, to be outstanding after giving effect to the sales contemplated hereby are hereinafter referred to as the Stock. In the event that the Company has a single subsidiary or does not have any subsidiaries, then all references herein to subsidiaries of the Company shall be deemed to refer to such single subsidiary or to the Company, respectively, mutatis mutandis.
Morgan Stanley & Co. LLC (the Directed Share Underwriter) has agreed to reserve a portion of the Shares to be purchased by it under this Agreement for sale to the Companys directors, officers, employees and business associates and other parties related to the Company (collectively, Participants), as set forth in each of the Pricing Prospectus and the Prospectus under the heading Underwriting (the Directed Share Program). The Shares to be sold by Directed Share Underwriter and its affiliates pursuant to the Directed Share Program, at the
direction of the Company, are referred to hereinafter as the Directed Shares. Any Directed Shares not orally confirmed for purchase by any Participant by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.
1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-255797) (the Initial Registration Statement) in respect of the Shares has been filed with the Securities and Exchange Commission (the Commission); the Initial Registration Statement and any post-effective amendment thereto, each in the form heretofore delivered to you, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a Rule 462(b) Registration Statement), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the Act), which became effective upon filing, no other document with respect to the Initial Registration Statement has been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose or pursuant to Section 8A of the Act has been initiated or, to the Companys knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) under the Act is hereinafter called a Preliminary Prospectus; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the Registration Statement; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(a)(iii) hereof) is hereinafter called the Pricing Prospectus; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the Prospectus; any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act or Rule 163B under the Act is hereinafter called a Testing-the-Waters Communication; any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act is hereinafter called a Written Testing-the-Waters Communication; and any issuer free writing prospectus as defined in Rule 433 under the Act relating to the Shares is hereinafter called an Issuer Free Writing Prospectus);
(ii) (A) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued by the Commission, and (B) each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information (as defined in Section 9(c) of this Agreement);
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(iii) For the purposes of this Agreement, the Applicable Time is [●] [a.m.][p.m.], New York City time, on the date of this Agreement; the Pricing Prospectus, as supplemented by the information listed on Schedule III(c) hereto, taken together (collectively, the Pricing Disclosure Package), as of the Applicable Time, did not, and as of each Time of Delivery (as defined in Section 4(a) of this Agreement) will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement, the Pricing Prospectus or the Prospectus, and each Issuer Free Writing Prospectus and each Written Testing-the-Waters Communication, as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not, and as of each Time of Delivery, will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements or omissions made in reliance upon and in conformity with the Underwriter Information;
(iv) No documents were filed with the Commission since the Commissions close of business on the business day immediately prior to the date of this Agreement and prior to the execution of this Agreement, except as set forth on Schedule III(b) hereto;
(v) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to each part of the Registration Statement, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto and as of each Time of Delivery, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information;
(vi) Neither the Company nor any of its subsidiaries has, since the date of the latest audited financial statements included in the Pricing Prospectus, (i) sustained any material loss or material interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree or (ii) entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole, in each case otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Disclosure Package, there has not been (x) any change in the capital stock (other than as a result of (i) the exercise, if any, of stock options or the award, if any, of stock options or restricted stock in the ordinary course of business pursuant to the Companys equity plans that are described in the Pricing Disclosure Package and the Prospectus or
3
(ii) the issuance, if any, of stock upon conversion of Company securities as described in the Pricing Disclosure Package and the Prospectus) or long-term debt of the Company or any of its subsidiaries or (y) any Material Adverse Effect; as used in this Agreement, Material Adverse Effect shall mean any material adverse change or effect, or any development involving a prospective material adverse change or effect, in or affecting (i) the business, properties, general affairs, management, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus, or (ii) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus;
(vii) The Company and its subsidiaries do not own any real property. The Company has good and marketable title to all material personal property (other than with respect to intellectual property which is addressed exclusively in subsection (xxvi) below) owned by them, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries;
(viii) Each of the Company and each of its subsidiaries has been (i) duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Pricing Prospectus, and (ii) duly qualified as a foreign corporation or other business entity for the transaction of business and is in good standing (where such concept exists) under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except, in the case of this clause (ii), where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and each subsidiary of the Company required to be identified has been listed in the Registration Statement;
(ix) The Company has an authorized capitalization as set forth in the Pricing Prospectus and all of the issued shares of capital stock of the Company, including the Shares to be sold by the Selling Stockholders, have been duly and validly authorized and issued and are fully paid and non-assessable and conform in all material respects to the description of the Stock contained in the Pricing Disclosure Package and the Prospectus;
(x) The Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform in all material respects to the description of the Stock contained in the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights, other than rights that have been complied with or waived;
4
(xi) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement and the consummation of the transactions contemplated in this Agreement and the Pricing Disclosure Package will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (B) the certificate of incorporation or by-laws (or other applicable organizational document) of the Company or any of its subsidiaries, or (C) any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, except, in the case of clauses (A) and (C) for such defaults, breaches or violations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue of the Shares to be sold by the Company and the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such as have been obtained under the Act, the approval by the Financial Industry Regulatory Authority (FINRA) of the underwriting terms and arrangements, the approval for listing the Shares on the New York Stock Exchange (the Exchange) and such consents, approvals, authorizations, orders, registrations or qualifications as may have been obtained or as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;
(xii) Neither the Company nor any of its subsidiaries is (i) in violation of its certificate of incorporation or by-laws (or other applicable organizational document), (ii) in violation of any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except, in the case of the foregoing clauses (ii) and (iii), for such violations or defaults as would not, individually or in the aggregate, have a Material Adverse Effect;
(xiii) The statements set forth in the Pricing Prospectus and the Prospectus under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Stock and under the caption Underwriting, insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects, and the statements set forth in the Pricing Prospectus and the Prospectus under the caption Material U.S. Federal Income Tax Consequences to Non-U.S. Holders, insofar as they purport to constitute summaries of U.S. federal income tax law and regulations or legal conclusions with respect thereto, constitute accurate summaries of the matters described therein in all material respects;
(xiv) Other than as set forth in the Pricing Prospectus, there are no legal, governmental or regulatory investigations, actions, demands, claims, suits, arbitrations, inquiries or proceedings (Actions) pending to which the Company or any of its subsidiaries or, to the Companys knowledge, any officer or director of the Company is a party or of which any property or assets of the Company or any of its subsidiaries or, to the Companys knowledge, any officer or director of the Company is the subject which, if determined adversely to the Company or any of its subsidiaries (or such officer or director), would individually or in the aggregate reasonably be expected to have a Material Adverse Effect; and, to the Companys knowledge, no such proceedings are threatened or contemplated by governmental authorities or others;
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(xv) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Pricing Disclosure Package and the Prospectus, will not be required to register as an investment company, as such term is defined in the Investment Company Act of 1940, as amended (the Investment Company Act);
(xvi) At the time of filing the Initial Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Act) of the Shares, and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Act;
(xvii) Ernst & Young LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder;
(xviii) The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that (i) has been designed to comply with the requirements of the Exchange Act, (ii) has been designed by the Companys principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP) and (iii) is designed to provide reasonable assurance that (A) transactions are executed in accordance with managements general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (C) access to assets is permitted only in accordance with managements general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and the Companys internal control over financial reporting is effective. The Company is not aware of any material weaknesses in its internal control over financial reporting; provided, however, that this subsection does not require that the Company comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder (the Sarbanes-Oxley Act) as of an earlier date than it would otherwise be required to so comply under applicable law;
(xix) Since the date of the latest audited financial statements included in the Pricing Prospectus, there has been no change in the Companys internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Companys internal control over financial reporting;
(xx) The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that comply with the requirements of the Exchange Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Companys principal executive officer and principal financial officer by others within those entities; and such disclosure controls and procedures are effective;
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(xxi) This Agreement has been duly authorized, executed and delivered by the Company;
(xxii) Neither the Company nor any of its subsidiaries, nor any director or officer of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, employee, affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) made, offered, promised or authorized any unlawful contribution, gift, entertainment or other unlawful expense (or taken any act in furtherance thereof); (ii) made, offered, promised or authorized any direct or indirect unlawful payment; or (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the rules and regulations thereunder, the Bribery Act 2010 of the United Kingdom or any other applicable anti-corruption, anti-bribery or related law, statute or regulation (collectively, Anti-Corruption Laws); the Company and its subsidiaries have conducted their businesses in compliance with Anti-Corruption Laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; neither the Company nor any of its subsidiaries or affiliates will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of Anti-Corruption Laws;
(xxiii) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with the requirements of applicable anti-money laundering laws, including, but not limited to, the Bank Secrecy Act of 1970, as amended by the USA PATRIOT ACT of 2001, and the rules and regulations promulgated thereunder, and the anti-money laundering laws of the various jurisdictions in which the Company and its subsidiaries conduct business (collectively, the Money Laundering Laws) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened;
(xxiv) Neither the Company nor any of its subsidiaries, nor any director or officer of the Company or any of its subsidiaries nor, to the knowledge of the Company, any agent, employee or affiliate of the Company or any of its subsidiaries is, or is owned or controlled by one or more individuals or entities that are, (i) currently the subject or the target of any sanctions administered or enforced by the U.S. Government, including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC), or the U.S. Department of State and including, without limitation, the designation as a specially designated national or blocked person, the European Union, Her Majestys Treasury, the United Nations Security Council, or other relevant sanctions authority (collectively, Sanctions), (ii) located, organized or resident in a country or territory that is the subject or target of Sanctions (a Sanctioned Jurisdiction), and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person, or in any country or territory, that, at the time of such funding, is the subject or the target of Sanctions or (ii) in any other manner that will
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result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not engaged in, are not now engaged in, and will not engage in any dealings or transactions with or involving any individual or entity that was or is, as applicable, at the time of such dealing or transaction, the subject or target of Sanctions or with any Sanctioned Jurisdiction;
(xxv) The financial statements included in the Registration Statement, the Pricing Prospectus and the Prospectus, together with the related schedules and notes, present fairly in all material respects the financial position of the Company and its subsidiaries at the dates indicated and the statement of operations, stockholders equity and cash flows of the Company and its subsidiaries for the periods specified; said financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved. The supporting schedules, if any, present fairly in all material respects and in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement, the Pricing Prospectus and the Prospectus present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included in the Registration Statement, the Pricing Prospectus or the Prospectus under the Act or the rules and regulations promulgated thereunder. All disclosures contained in the Registration Statement, the Pricing Prospectus and the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Act, to the extent applicable;
(xxvi) Except as would not, individually or in the aggregate, have a Material Adverse Effect, the Company and each of its subsidiaries (i) own or otherwise possess adequate rights to use all patents, trademarks, service marks, trade names, domain names, copyrights, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures and other intellectual property) necessary for the conduct of their respective businesses, (ii) do not, through the conduct of their respective businesses, infringe or violate any such right of others and (iii) have not received any written notice of any claim of infringement or violation of any such rights of others;
(xxvii) Except as would not, individually or in the aggregate, have a Material Adverse Effect, the Company and its subsidiaries information technology assets and equipment, computers, systems, networks, hardware, software, websites, applications, and databases (collectively, IT Systems) are adequate for, and operate and perform as required in connection with the operation of the business of the Company and its subsidiaries as currently conducted, to the knowledge of the Company, free and clear of all bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants. The Company and its subsidiaries have adopted and maintain commercially reasonable controls, policies, procedures and safeguards designed to maintain and protect their confidential information and the integrity, continuous operation, redundancy and security of their IT Systems and data (including information relating to an identifiable natural person and any other personal or personally identifiable data or information (Personal Data)) used in connection with their businesses, and, except as would not, individually or in the aggregate, have a Material Adverse Effect there have been no breaches, violations,
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outages or unauthorized uses of or accesses to same. The Company and its subsidiaries are presently in compliance and have at all times complied in all respects with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems, and Personal Data, the protection of such IT Systems, and Personal Data from unauthorized use, access, misappropriation or modification, direct marketing or communications by telephone or text messages and consumer protection (collectively, Privacy Requirements) except for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect. The Company has at all times made all disclosures to users or customers required by Privacy Requirements, and no such disclosures or public statements of the Company have been inaccurate or misleading in any material respect. The Company (i) has not received notice of any actual or potential liability under or relating to, or actual or potential violation of, any Privacy Requirements, and has no knowledge of any event or condition that would reasonably be expected to result in any such notice; (ii) is not currently involved in any investigation, remediation or other corrective action required pursuant to any Privacy Requirements; and (iii) is not a party to any settlement, judgment, order or decree that imposes any obligation or liability under any Privacy Requirements;
(xxviii) Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in each of the Registration Statement, the Pricing Prospectus and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects;
(xxix) There is and has been no failure on the part of the Company or any of the Companys directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act, including Section 402 related to loans;
(xxx) Neither the Company nor any of its affiliates has taken or will take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of the Shares;
(xxxi) The Company and each of its subsidiaries have such permits, licenses, approvals, consents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities (Permits) as are necessary under applicable law to own their respective properties and conduct their respective businesses in the manner described in the Registration Statement, the Pricing Prospectus and the Prospectus, except for any of the foregoing that would not, individually or in the aggregate, have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received notice of any proceedings related to the revocation or modification of any such Permits that, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect;
(xxxii) From the time of initial confidential submission of a registration statement relating to the Shares with the Commission through the date hereof, the Company has been and is an emerging growth company as defined in Section 2(a)(19) of the Act (an Emerging Growth Company);
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(xxxiii) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (Environmental Laws), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xxxiv) No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing, threatened or imminent labor disturbance by the employees of any of its principal suppliers or contractors that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xxxv) (A) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are, in the Companys judgment, commercially reasonable and customary in the businesses in which they are engaged; (B) neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and (C) neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not reasonably be expected to have a Material Adverse Effect;
(xxxvi) The Company and each of its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date of this Agreement, or have requested extensions thereof, and have paid all taxes required to be paid thereon (except for where the failure to file or pay would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or except as currently being contested in good faith and for which reserves required by GAAP have been created in the financial statements of the Company or its applicable subsidiary), and no tax deficiency has been determined adversely to the Company or any of its subsidiaries that has had (nor has the Company nor any of its subsidiaries received written notice or have knowledge of any tax deficiency which could reasonably be expected to be determined adversely to the Company or its subsidiaries and which could reasonably be expected to have) a Material Adverse Effect;
(xxxvii) On or after the Applicable Time there will be no debt securities issued or guaranteed by the Company that are rated by any nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2)under the Act;
(xxxviii) The Registration Statement, the Prospectus, the Pricing Prospectus and any preliminary prospectus comply, and any amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus, the Pricing Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program;
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(xxxix) No consent, approval, authorization or order of, or qualification with, any governmental body or agency, other than those obtained, is required in connection with the offering of the Directed Shares in any jurisdiction where the Directed Shares are being offered; and
(xl) 1The Company has not offered, or caused the Directed Share Underwriter or any Directed Share Underwriter Entity (as defined in Section 9(g)) to offer, Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (1) a customer or supplier of the Company to alter the customers or suppliers level or type of business with the Company, or (2) a trade journalist or publication to write or publish favorable information about the Company or its products.
(b) Each of the Selling Stockholders severally represents and warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and for the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder, have been obtained, except for the registration under the Act of the Shares and such consents, approvals, authorizations and orders as may be required under state securities or Blue Sky laws, the rules and regulations of FINRA or the approval for listing on the Exchange; and such Selling Stockholder has full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder to the Underwriters hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder and the compliance by such Selling Stockholder with this Agreement the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, nor will such action result in any violation of the provisions of the Selling Stockholders formation and organizational documents (including, but not limited to, Certificates of Incorporation, By-laws, Certificates of Formation, Limited Liability Company Agreements and Partnership Agreements), as applicable, or any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or any of its subsidiaries or any property or assets of such Selling Stockholder, except, in each case, for any such conflict, breach, violation or default that would not, individually or in the aggregate, affect the validity of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder or reasonably be expected to materially impair the ability of such Selling Stockholder to consummate the transactions contemplated by this Agreement; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental body or agency is required for the performance by such Selling Stockholder of its obligations under this Agreement and the consummation by such Selling Stockholder of the transactions contemplated by this Agreement in connection with the Shares to be sold by such Selling Stockholder to the Underwriters hereunder, except the registration under the Act of the Shares, the approval by FINRA of the underwriting terms and arrangements, the approval for listing on the New York Stock Exchange and such consents, approvals,
1 |
Note to Latham: We have stetted changes related to MS form DSP language, which we see included in other recent precedents. Let us know if there are any particular concerns. |
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authorizations, orders, registrations or qualifications (x) as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters, (y) that have already been obtained or (z) such that, if not obtained, would not, individually or in the aggregate, affect the validity of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder or reasonably be expected to materially impair the ability of such Selling Stockholder to consummate the transactions contemplated by this Agreement;
(iii) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to, or a valid security entitlement within the meaning of Section 8-501 of the New York Uniform Commercial Code in respect of, the Shares to be sold by such Selling Stockholder to the Underwriters hereunder at such Time of Delivery, free and clear of all liens, encumbrances, equities or claims; and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters;
(iv) On or prior to the date of the Pricing Prospectus, such Selling Stockholder has executed and delivered to the Underwriters an agreement substantially in the form of Annex II hereto.
(v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or would reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(vi) The Registration Statement and Preliminary Prospectus did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that such representations and warranties set forth in this clause (vi) apply, with respect to a Selling Stockholder, only to statements or omissions made in the Registration Statement, the Preliminary Prospectus, the Prospectus and any further amendments or supplements to the Registration Statement, the Preliminary Prospectus and the Prospectus that are made in reliance upon and in conformity with written information furnished to the Company by such Selling Stockholder expressly for use therein; provided, further, that it is agreed that such information furnished by such Selling Stockholder to the Company consists only of (A) the legal name, address and the number of Shares owned by such Selling Stockholder before and after the offering, (B) any biographical information provided by such Selling Stockholder with regard to representatives of such Selling Stockholder that are members of the board of directors of the Company and (C) the other information with respect to such Selling Stockholder (excluding percentages) which appear in the table (and corresponding footnotes) under the caption Principal and Selling Stockholders (such information in the foregoing clauses (A), (B) and (C) with respect to such Selling Stockholder, collectively, the Selling Stockholder Information);
(vii) In order to document the Underwriters compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery (as defined in Section 4 hereof) a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof);
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(viii) Neither such Selling Stockholder nor any of its subsidiaries nor any director, officer or employee of such Selling Stockholder or any of its subsidiaries nor, to the knowledge of such Selling Stockholder, any agent, affiliate or other person associated with or acting on behalf of such Selling Stockholder or any of its subsidiaries has (i) made, offered, promised or authorized any unlawful contribution, gift, entertainment or other unlawful expense (or taken any act in furtherance thereof); (ii) made, offered, promised or authorized any direct or indirect unlawful payment; or (iii) violated or is in violation of any provision of the Anti-Corruption Laws; such Selling Stockholder and its subsidiaries have conducted their businesses in compliance with Anti-Corruption Laws and have instituted and maintained and will continue to maintain policies and procedures reasonably designed to promote and achieve compliance with such laws and with the representations and warranties contained herein; neither such Selling Stockholder nor any of its subsidiaries will use, directly or indirectly, the proceeds of the offering in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of Anti-Corruption Laws;
(ix) The operations of such Selling Stockholders and its subsidiaries are and have been conducted at all times in compliance with the Money Laundering Laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving such Selling Stockholder or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of such Selling Stockholder, threatened;
(x) Neither such Selling Stockholder nor any of its subsidiaries, nor any director, officer or employee of such Selling Stockholder or any of its subsidiaries, nor, to the knowledge of such Selling Stockholder, any agent, affiliate or other person associated with or acting on behalf of such Selling Stockholder or any of its subsidiaries is, or is owned or controlled by one or more individuals or entities that are, (i) currently the subject or the target of any Sanctions, (ii) located, organized or resident in a Sanctioned Jurisdiction, and such Selling Stockholder will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, (i) to fund or facilitate any activities of or business with any person, or in any country or territory, that, at the time of such funding, is the subject or the target of Sanctions or (ii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions; neither such Selling Stockholder nor any of its subsidiaries is engaged in, will engage in or has engaged in, any dealings or transactions with or involving any individual or entity that was or is, as applicable, at the time of such dealing or transaction, the subject or target of Sanctions or with any Sanctioned Jurisdiction; such Selling Stockholder and its subsidiaries have instituted, and maintain, policies and procedures designed to promote and achieve continued compliance with Sanctions;
(xi) Such Selling Stockholder is not prompted by any information concerning the Company or any of its subsidiaries that is not disclosed in the Pricing Prospectus to sell its Shares pursuant to this Agreement; and
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(xii) If a Selling Stockholder is an entity, such Selling Stockholder has been duly organized and is validly existing and in good standing, in each case, under the laws of its respective jurisdiction.
2. Subject to the terms and conditions herein set forth, (a) the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $[●], the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company and the Selling Stockholders, as and to the extent indicated in Schedule II hereto agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2 (provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares), that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant to the Underwriters the right to purchase at their election up to [●] Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company and the Selling Stockholders, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery or, unless you and the Company and the Selling Stockholders otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Shares, the several Underwriters propose to offer the Shares for sale upon the terms and conditions set forth in the Pricing Disclosure Package and the Prospectus.
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4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive or book-entry form, and in such authorized denominations and registered in such names as the Representatives may request upon at least forty-eight hours prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to the Representatives, through the facilities of the Depository Trust Company (DTC), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the accounts specified by the Company and the Selling Stockholders to the Representatives at least forty-eight hours in advance. The Company and the Selling Stockholders will cause the certificates, if any, representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the Designated Office). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York time, on June [●], 2021 or such other time and date as the Representatives, the Company and the Selling Stockholders may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by the Representatives in each written notice given by the Representatives of the Underwriters election to purchase such Optional Shares, or such other time and date as the Representatives, the Company and the Selling Stockholders may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the First Time of Delivery, each such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the Second Time of Delivery, and each such time and date for delivery is herein called a Time of Delivery.
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(l) hereof will be delivered at the offices of Cooley LLP: 101 California Street, 5th Floor, San Francisco, California 94111 (the Closing Location), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at [●] [a.m.][p.m.], New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, New York Business Day shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commissions close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish you with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;
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(b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation (where not otherwise required) or to file a general consent to service of process in any jurisdiction (where not otherwise required);
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day next succeeding the date of this Agreement (or such other time as may be agreed to by you, the Company and the Selling Stockholders) and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer in securities (whose name and address the Underwriters shall furnish to the Company) as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as practicable (which may be satisfied by filing with the Commissions Electronic Data Gathering Analysis and Retrieval System (EDGAR)), but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
(e) (i) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the Lock-Up Period), not to (i) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, or file with or confidentially submit to the Commission a registration statement under the Act relating to, any securities of the Company that are substantially similar to the Shares, including but not limited to any options or warrants to purchase shares of Stock or any securities that are convertible into or exchangeable for, or that represent
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the right to receive, Stock or any such substantially similar securities, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, or publicly disclose the intention to undertake any of the foregoing in clause (i) or (ii), whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC; provided, however that the forgoing restrictions shall not apply to (1) the Shares to be sold hereunder, (2) any shares of Stock issued upon the reclassification and exchange of common stock outstanding on the date of this Agreement in connection with the offering contemplated by this Agreement and as described in the Registration Statement and the Prospectus, (3) any shares of Stock or any securities or other awards (including without limitation options, restricted stock or restricted stock units) convertible into, exercisable for, or that represent the right to receive, shares of Stock pursuant to any stock option plan, incentive plan or stock purchase plan of the Company (collectively, Company Stock Plans) or otherwise in equity compensation arrangements described in the Registration Statement and the Prospectus or any shares of Stock issuable upon the exercise, conversion or settlement of such awards, provided that any recipient thereof has provided to the Representatives a signed lock-up letter substantially in the form of Annex II hereto, (4) the issuance by the Company of shares of its Class A common stock upon the conversion of shares of its Class B common stock, (5) the filing by the Company of any registration statement on Form S-8 or a successor form thereto relating to any Company Stock Plan described in the Registration Statement and the Prospectus or any assumed employee benefit plan contemplated by clause (6), and (6) any shares of Stock or any securities convertible into or exchangeable for, or that represent the right to receive, shares of Stock issued in connection with any joint venture, commercial or collaborative relationship or the acquisition or license by the Company of the securities, businesses, property or other assets of another person or entity or pursuant to any employee benefit plan assumed by the Company in connection with any such acquisition, provided that in the case of clause (6), the aggregate number of shares that the Company may sell or issue or agree to sell or issue pursuant to clause (6), (x) shall not exceed 5.0% of the total number of shares of Stock issued and outstanding immediately following the completion of the transactions contemplated by this Agreement) and (y) the recipients thereof provide to the Representatives a signed lock-up letter substantially in the form of Annex II hereto;
(ii) If Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC agree to release or waive the restrictions set forth in lock-up letters pursuant to Section 1(b)(iv) or Section 8(j) hereof, in each case for an officer or director of the Company, and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Annex I hereto through a major news service at least two business days before the effective date of the release or waiver;
(iii) To not instruct its counsel or the transfer agent to authorize or facilitate the transfer of any Shares subject to a signed lock-up letter with the Underwriters substantially in the form of Annex II hereto until, in respect of any particular securityholder, the earlier to occur of (A) the expiration of the Lock-Up Period or (B) the expiration of any similar arrangement entered into by such securityholder with the Representatives; to direct the transfer agent to place stop transfer restrictions upon any such securities of the Company that are bound by such existing lock-up, market stand-off, holdback or similar provisions of such agreements for the duration of the periods contemplated in the preceding clause; and not to release or otherwise grant any waiver of such provisions in such agreements during such periods without the prior written consent of the Representatives, on behalf of the Underwriters;
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(f) During a period of three years from the effective date of the Registration Statement, for so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; provided, however, that the Company may satisfy the requirements of this Section 5(f) by filing such information through EDGAR;
(g) During a period of three years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission) provided, however, that the Company may satisfy the requirements of this Section 5(g) by filing such information through EDGAR;
(h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Pricing Prospectus under the caption Use of Proceeds;
(i) To use its best efforts to list for trading, subject to official notice of issuance, the Shares on the Exchange;
(j) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 3a(c) of the Commissions Informal and Other Procedures (16 CFR 202.3a);
(l) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Companys trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the License); provided, however, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred;
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(m) To comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program; and
(n) To promptly notify you if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Act and (ii) the last Time of Delivery.
6. (a) The Company represents and agrees that, without the prior consent of the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus as defined in Rule 405 under the Act; each Selling Stockholder represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; and each Underwriter represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus required to be filed with the Commission; any such free writing prospectus the use of which has been consented to by the Company and the Representatives is listed on Schedule III(a) hereto;
(b) The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;
(c) The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus or Written Testing-the-Waters Communication prepared or authorized by it any event occurred or occurs as a result of which such Issuer Free Writing Prospectus or Written Testing-the-Waters Communication prepared or authorized by it would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus, Written Testing-the-Waters Communication or other document which will correct such conflict, statement or omission; provided, however, that this representation and warranty shall not apply to any statements or omissions in an Issuer Free Writing Prospectus made in reliance upon and in conformity with the Underwriter Information;
(d) The Company represents and agrees that (i) it has not engaged in, or authorized any other person to engage in, any Testing-the-Waters Communications, other than Testing-the-Waters Communications with the prior consent of the Representatives with entities that the Company reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act; and (ii) it has not distributed, or authorized any other person to distribute, any Written Testing-the-Waters Communication, other than those distributed with the prior consent of the Representatives that are listed on Schedule III(d) hereto; and the Company reconfirms that the Underwriters have been authorized to act on its behalf in engaging in Testing-the-Waters Communications; and
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(e) Each Underwriter represents and agrees that any Testing-the-Waters Communications undertaken by it were with entities that such Underwriter reasonably believes are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Act.
7. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Companys counsel and accountants in connection with the registration of the Shares under the Act and all other expenses in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) reasonable and documented expenses in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on the Exchange; (v) reasonable and documented filing fees incident to, and the fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates, if applicable; (vii) the cost and charges of any transfer agent or registrar; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; provided that the amount payable by the Company pursuant to subsections (iii) and (v) for fees and disbursements of counsel shall not exceed $40,000 in the aggregate and (b) such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling Stockholders obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of counsel for such Selling Stockholder and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. In addition, the Company shall pay or cause to be paid all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 9 and 12 hereof, the Underwriters will pay all of their own costs and expenses, including their own lodging, travel and meal expenses (including meal expenses for potential investors) in connection with any roadshow, the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make, and the Underwriters will be responsible for 50% of the cost of any chartered plane or other transportation chartered in connection with any roadshow presentation to investors undertaken in connection with the offering of the Shares hereunder.
8. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and the Selling Stockholders herein are, at and as of the Applicable Time and such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of its and their obligations hereunder theretofore to be performed, and the following additional conditions:
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(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose or pursuant to Section 8A of the Act shall have been initiated or threatened by the Commission no stop order suspending or preventing the use of the Pricing Prospectus, Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;
(b) Cooley LLP, counsel for the Underwriters, shall have furnished to you such written opinion or opinions and negative assurance letter or letters, dated such Time of Delivery, in form and substance satisfactory to you, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters;
(c) Latham & Watkins LLP, counsel for the Company, shall have furnished to you their written opinion and negative assurance letter, dated such Time of Delivery, in form and substance reasonably satisfactory to you;
(d) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel, dated such Time of Delivery, in form and substance reasonably satisfactory to you;
(e) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you;
(f) The Company shall have delivered to the Representatives on the date of the Prospectus at a time prior to the execution of this Agreement and at such Time of Delivery a certificate of the Chief Financial Officer of the Company, in form and substance reasonably satisfactory to you;
(g) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Pricing Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Pricing Disclosure Package there shall not have been any change in the capital stock (other than as a result of the exercise of stock options or the award of stock options or restricted stock in the ordinary course of business pursuant to the Companys
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equity plans that are described in the Pricing Prospectus) or long-term debt of the Company or any of its subsidiaries or any change or effect, or any development involving a prospective change or effect, in or affecting (x) the business, properties, general affairs, management, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Disclosure Package, or (y) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Disclosure Package and the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Disclosure Package and the Prospectus;
(h) On or after the Applicable Time there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Exchange or the NASDAQ Global Market; (ii) a suspension or material limitation in trading in the Companys securities on the Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been duly listed, subject to official notice of issuance, on the Exchange;
(j) The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from (i) each officer and director and (ii) security holders of the Company representing substantially all of the shares of capital stock of the Company, in each case substantially to the effect set forth in Annex II hereto;
(k) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (g) of this Section 8 and as to such other matters as you may reasonably request.
(m) The Company and each Selling Stockholder that is an entity shall have delivered to each Underwriter (or its agent), on the date of execution of this Agreement, a properly completed and executed Certification Regarding Beneficial Owners of Legal Entity Customers, together with copies of identifying documentation, and the Company and each Selling Stockholder that is an entity shall have undertaken to provide such additional supporting documentation as each Underwriter may reasonably request in connection with the verification of the foregoing Certification.
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9. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any roadshow as defined in Rule 433(h) under the Act (a roadshow), any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act or any Testing-the-Waters Communication prepared or authorized by the Company, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information.
(b) Each of the Selling Stockholders listed in Schedule II hereto, will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any roadshow or any Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto or any Issuer Free Writing Prospectus, or any roadshow or any Testing-the-Waters Communication, in reliance upon and in conformity with the Selling Stockholder Information; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any amendment or supplement thereto or any Issuer Free Writing Prospectus in reliance upon and in conformity with the Underwriter Information. Notwithstanding anything to the contrary in this Section 9, the liability of each Selling Stockholder under this Section 9(b) shall in no event exceed the amount of such Selling Stockholders net proceeds (after deducting underwriting discounts and commissions but before deducting any other expenses) from its sale of the Shares under this Agreement (the Selling Stockholder Proceeds).
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(c) Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Testing-the-Waters Communication, in reliance upon and in conformity with the Underwriter Information; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. As used in this Agreement with respect to an Underwriter and an applicable document, Underwriter Information shall mean the written information furnished to the Company by such Underwriter through the Representatives expressly for use therein; it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the sixth paragraph under the caption Underwriting, and the information contained in the fourteenth paragraph under the caption Underwriting.
(d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) of this Section 9 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under the preceding paragraphs of this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the written
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consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholder on the one hand or the Underwriters on the other and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. Notwithstanding anything to the contrary in this Section 9, the liability of each Selling Stockholder under this Section 9(e) shall in no event exceed its Selling Stockholder Proceeds; provided, however, in no event shall any Selling Stockholder be required to contribute pursuant to this subsection (e) any amount in excess of the amount by which the Selling Stockholder Proceeds received by such Selling Stockholder from the sale of the Shares exceeds the damages that such Selling Stockholder would have otherwise been required to pay under subsection (b) above by reason of an untrue or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with the Selling Stockholder Information.
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(f) The obligations of the Company and the Selling Stockholders under this Section 9 shall be in addition to any liability which the Company and the Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each employee, officer and director of each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act and each broker-dealer or other affiliate of any Underwriter; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act.
(g) (i) The Company agrees to indemnify and hold harmless the Directed Share Underwriter, each person, if any, who controls the Directed Share Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and each affiliate of the Directed Share Underwriter within the meaning of Rule 405 of the Securities Act (Directed Share Underwriter Entities) from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) that arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or arise out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) that arise out of, or are based upon, the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of Directed Share Underwriter Entities.
(ii) In case any proceeding (including any governmental investigation) shall be instituted involving any Directed Share Underwriter Entity in respect of which indemnity may be sought pursuant to Section 9(g)(i), the Directed Share Underwriter Entity seeking indemnity, shall promptly notify the Company in writing and the Company, upon request of the Directed Share Underwriter Entity, shall retain counsel reasonably satisfactory to the Directed Share Underwriter Entity to represent the Directed Share Underwriter Entity and any others the Company may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Directed Share Underwriter Entity shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Directed Share Underwriter Entity unless (i) the Company shall have agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Company and the Directed Share Underwriter Entity and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not, in respect of the legal expenses of the Directed Share Underwriter Entities in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Directed Share Underwriter Entities. Any
26
such separate firm for the Directed Share Underwriter Entities shall be designated in writing by the Directed Share Underwriter. The Company shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the Directed Share Underwriter Entities from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time a Directed Share Underwriter Entity shall have requested the Company to reimburse it for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the Company agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Company of the aforesaid request and (ii) the Company shall not have reimbursed the Directed Share Underwriter Entity in accordance with such request prior to the date of such settlement. The Company shall not, without the prior written consent of Directed Share Underwriter, effect any settlement of any pending or threatened proceeding in respect of which any Directed Share Underwriter Entity is or could have been a party and indemnity could have been sought hereunder by such Directed Share Underwriter Entity, unless such settlement includes an unconditional release of the Directed Share Underwriter Entities from all liability on claims that are the subject matter of such proceeding.
(iii) To the extent the indemnification provided for in Section 9(g) is unavailable to a Directed Share Underwriter Entity or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the Company in lieu of indemnifying the Directed Share Underwriter Entity thereunder, shall contribute to the amount paid or payable by the Directed Share Underwriter Entity as a result of such losses, claims, damages or liabilities (1) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand from the offering of the Directed Shares or (2) if the allocation provided by clause 9(g)(iii)(1) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 9(g)(iii)(1) above but also the relative fault of the Company on the one hand and of the Directed Share Underwriter Entities on the other hand in connection with any statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Directed Share Underwriter Entities on the other hand in connection with the offering of the Directed Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Directed Shares (before deducting expenses) and the total underwriting discounts and commissions received by the Directed Share Underwriter Entities for the Directed Shares, bear to the aggregate initial public offering price of the Directed Shares. If the loss, claim, damage or liability is caused by an untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, the relative fault of the Company on the one hand and the Directed Share Underwriter Entities on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or the omission or alleged omission relates to information supplied by the Company or by the Directed Share Underwriter Entities and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(iv) The Company and the Directed Share Underwriter Entities agree that it would not be just or equitable if contribution pursuant to this Section 9(g)(iv) were determined by pro rata allocation (even if the Directed Share Underwriter Entities were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 9(g)(iii). The amount paid or payable by the Directed Share Underwriter Entities as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth
27
above, any legal or other expenses reasonably incurred by the Directed Share Underwriter Entities in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9(g)(iv), no Directed Share Underwriter Entity shall be required to contribute any amount in excess of the amount by which the total price at which the Directed Shares distributed to the public were offered to the public exceeds the amount of any damages that such Directed Share Underwriter Entity has otherwise been required to pay. The remedies provided for in this Section 9 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity.
(v) The indemnity and contribution provisions contained in this Section 9(g) shall remain operative and in full force and effect regardless of (1) any termination of this Agreement, (2) any investigation made by or on behalf of any Directed Share Underwriter Entity or the Company, its officers or directors or any person controlling the Company and (3) acceptance of and payment for any of the Directed Shares.
10. (a) If any Underwriter shall default in its obligation to purchase the Shares that it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company or a Selling Stockholder notifies you that it has so arranged for the purchase of such Shares, you or the Company or the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term Underwriter as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares
28
of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to a Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company and the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders, except for the expenses to be borne by the Company, the Selling Stockholders and the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, rights of contribution, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any director, officer, employee, affiliate or controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholder, and shall survive delivery of and payment for the Shares.
12. If this Agreement shall be terminated pursuant to Section 10 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof; but, if for any other reason any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, or the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company and each of the Selling Stockholders pro rata (based on the number of Shares to be sold by the Company and each Selling Stockholder hereunder) will reimburse the Underwriters through you for all reasonably incurred and documented out-of-pocket expenses approved in writing by you, including documented fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter except as provided in Sections 7 and 9 hereof.
13. In all dealings hereunder, the Representatives shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by the Representatives on behalf of the Underwriters.
In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and the Selling Stockholders, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to the Representatives: Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282, Attention: Registration Department and Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department; if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to counsel for such Selling Stockholder at its address set forth in Schedule II hereto; if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set
29
forth on the cover of the Registration Statement, Attention: Secretary; provided, however, that any notice to an Underwriter pursuant to Section 9(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request; provided, however, that notices under subsection 5(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives at Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Control Room and Morgan Stanley & Co. LLC, 1585 Broadway, New York, New York 10036, Attention: Equity Syndicate Desk, with a copy to the Legal Department. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 9 and 11 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, or any director, officer, employee, or affiliate of any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the term business day shall mean any day when the Commissions office in Washington, D.C. is open for business.
16. (a) The Company and the Selling Stockholders acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement is an arms length commercial transaction between the Company and the Selling Stockholders, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company or any Selling Stockholder, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company or any Selling Stockholder with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Stockholder on other matters) or any other obligation to the Company or any Selling Stockholder except the obligations expressly set forth in this Agreement, and (iv) the Company and each Selling Stockholder has consulted its own legal and financial advisors to the extent it deemed appropriate. The Company and each Selling Stockholder agrees that it will not claim that the Underwriters, or any of them, has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Company or any Selling Stockholder, in connection with such transaction or the process leading thereto.
(b) The Company and each Selling Stockholder acknowledge that in connection with the offering of the Shares, none of the activities of the Underwriters in connection with the transactions contemplated herein constitutes a recommendation, investment advice or solicitation of any action by the Underwriters with respect to any entity or natural person. The Company and each Selling Stockholder waive to the full extent permitted by applicable law any claims it may have against the Underwriters arising from an alleged breach of fiduciary duty in connection with the offering of the Shares.
30
(c) Each Selling Stockholder further acknowledges and agrees that, although the Underwriters may provide certain Selling Stockholders with certain Regulation Best Interest and Form CRS disclosures or other related documentation in connection with the offering, the Underwriters are not making a recommendation to any Selling Stockholder to participate in the offering or sell any Shares at the purchase price set forth in Section 2 herein, and nothing set forth in such disclosures or documentation is intended to suggest that any Underwriter is making such a recommendation.
17. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Selling Stockholders and the Underwriters, or any of them, with respect to the subject matter hereof.
18. This Agreement and any transaction contemplated by this Agreement and any claim, controversy or dispute arising under or related thereto shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws that would result in the application of any other law than the laws of the State of New York. The Company and each Selling Stockholder agree that any suit or proceeding arising in respect of this Agreement or any transaction contemplated by this Agreement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York and the Company and each Selling Stockholder agree to submit to the jurisdiction of, and to venue in, such courts.
19. The Company, each Selling Stockholder and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
20. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
21. Notwithstanding anything herein to the contrary, the Company and the Selling Stockholders are authorized to disclose to any persons the U.S. federal and state income tax treatment and tax structure of the potential transaction and all materials of any kind (including tax opinions and other tax analyses) provided to the Company and the Selling Stockholders relating to that treatment and structure, without the Underwriters imposing any limitation of any kind. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, tax structure is limited to any facts that may be relevant to that treatment.
22. Recognition of the U.S. Special Resolution Regimes.
(a) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this
31
Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
(c) As used in this section:
BHC Act Affiliate has the meaning assigned to the term affiliate in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
Covered Entity means any of the following:
(i) (i) a covered entity as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) (ii) a covered bank as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) (iii) a covered FSI as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
(iv) Default Right has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
(v) U.S. Special Resolution Regime means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
[remainder of page intentionally left blank]
32
If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and each of the Representatives plus one for each counsel and the Custodian counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this Agreement on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling Stockholders for examination, upon request, but without warranty on your part as to the authority of the signers thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney that authorizes such Attorney-in-Fact to take such action.
Very truly yours, | ||
FIGS, INC. | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to Underwriting Agreement]
TULCO, LLC | ||
By: |
|
|
Name: | ||
Title: |
[Signature Page to Underwriting Agreement]
Accepted as of the date hereof | ||
GOLDMAN SACHS & CO. LLC | ||
By: |
|
|
Name: | ||
Title: | ||
MORGAN STANLEY & CO. LLC | ||
By: |
|
|
Name: | ||
Title: | ||
On behalf of each of the Underwriters |
[Signature Page to Underwriting Agreement]
SCHEDULE I
Underwriter |
Total Number
of Firm Shares to be Purchased |
Number of
Optional Shares to be Purchased if Maximum Option Exercised |
||||||
Goldman Sachs & Co. LLC |
||||||||
Morgan Stanley & Co. LLC |
||||||||
Barclays Capital Inc. |
||||||||
Credit Suisse Securities (USA) LLC |
||||||||
BofA Securities, Inc. |
||||||||
Cowen and Company, LLC |
||||||||
Guggenheim Securities, LLC |
||||||||
KeyBanc Capital Markets Inc. |
||||||||
Piper Sandler & Co. |
||||||||
Oppenheimer & Co. Inc. |
||||||||
Telsey Advisory Group LLC |
||||||||
Academy Securities, Inc. |
||||||||
R. Seelaus & Co., LLC |
||||||||
Samuel A. Ramirez & Company, Inc. |
||||||||
|
|
|
|
|||||
Siebert Williams Shank & Co., LLC |
||||||||
|
|
|
|
|||||
Total |
I-1
SCHEDULE II
Underwriter |
Total Number
of Firm Shares to be Purchased |
Number of
Optional Shares to be Purchased if Maximum Option Exercised |
||||||
The Company |
| |||||||
The Selling Stockholder(s): |
||||||||
|
|
|
|
|||||
Tulco, LLC(a) |
||||||||
|
|
|
|
|||||
Total |
(a) |
This Selling Stockholder is represented by Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Ave., Palo Alto, CA 94301, Attention: Gregg Noel, Esq. |
II-1
SCHEDULE III
(a) |
Issuer Free Writing Prospectuses not included in the Pricing Disclosure Package |
[Electronic Roadshow dated [●], 2021]
(b) |
Additional documents incorporated by reference |
[None]
(c) |
Information other than the Pricing Prospectus that comprise the Pricing Disclosure Package |
The initial public offering price per share for the Shares is $[●].
The number of Shares purchased by the Underwriters is [●].
(d) |
Written Testing-the-Waters Communications |
[ ]
III-1
ANNEX I
FORM OF PRESS RELEASE
FIGS, Inc.
[Date]
FIGS, Inc. (the Company) announced today that Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, the lead book-running managers in the recent public sale of shares of the Companys common stock, are [waiving] [releasing] a lock-up restriction with respect to shares of the Companys Class A common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
I-1
ANNEX II
FIGS, INC.
[FORM OF] LOCK-UP AGREEMENT
, 2021
Goldman Sachs & Co. LLC
Morgan Stanley & Co. LLC
As representatives of the several Underwriters
named in Schedule I to the Underwriting Agreement
c/o |
Goldman Sachs & Co. LLC |
200 West Street
New York, NY 10282
c/o |
Morgan Stanley & Co. LLC |
1585 Broadway
New York, NY 10036
Re: |
FIGS, Inc. Lock-Up Agreement |
Ladies and Gentlemen:
The undersigned understands that you, as representatives (the Representatives), propose to enter into an underwriting agreement (the Underwriting Agreement) on behalf of the several Underwriters named in Schedule I to the Underwriting Agreement (collectively, the Underwriters), with FIGS, Inc., a Delaware corporation (the Company), providing for a public offering (the Public Offering) of shares of Class A Common Stock of the Company (the Shares) pursuant to a Registration Statement (the Registration Statement) on Form S-1 to be filed with the Securities and Exchange Commission (the SEC).
In consideration of the agreement by the Underwriters to offer and sell the Shares, and of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned agrees that, during the period beginning from the date of this agreement (the Lock-Up Agreement) and continuing to and including the date that is the earlier of (i) 180 days after the date (the Public Offering Date) set forth on the final prospectus related to the Public Offering (the Prospectus) used to sell the Shares and (ii) the second full Trading Day following the Companys second public release of quarterly or annual financial results following the Public Offering Date (the Lock-Up Period), the undersigned shall not, and shall not cause or direct any of its affiliates to, (i) offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of any shares of Class A Common Stock, Class B Common Stock or Class C Common Stock of the Company (collectively, Common Stock), or any options or warrants to purchase any shares of Common Stock of the Company, or any securities convertible into, exchangeable for or that represent the right to receive shares of Common Stock of the Company (such options, warrants or other securities, collectively, Derivative Instruments), including without limitation any such shares or Derivative Instruments now owned or hereafter acquired by the undersigned, (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or
II-2
the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined), which is designed to or which reasonably could be expected to lead to or result in a sale, loan, pledge or other disposition (whether by the undersigned or someone other than the undersigned), or transfer of any of the economic consequences of ownership, in whole or in part, directly or indirectly, of any shares of Common Stock of the Company or Derivative Instruments, whether any such transaction or arrangement (or instrument provided for thereunder) would be settled by delivery of Common Stock or other securities, in cash or otherwise (any such sale, loan, pledge or other disposition, or transfer of economic consequences, a Transfer), or (iii) otherwise publicly announce any intention to engage in or cause any action or activity described in clause (i) above or transaction or arrangement described in clause (ii) above. The undersigned represents and warrants that the undersigned is not, and has not caused or directed any of its affiliates to be or become, currently a party to any agreement or arrangement that provides for, is designed to or which reasonably could be expected to lead to or result in any Transfer during the Lock-Up Period. For the avoidance of doubt, if the undersigned is an officer under the rules and regulations of the Financial Industry Regulatory Authority, Inc. (FINRA) or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed or other Shares the undersigned may purchase in the Public Offering.
If the undersigned is not a natural person, the undersigned represents and warrants that no single natural person, entity or group (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), other than a natural person, entity or group (as described above) that has executed a Lock-Up Agreement in substantially the same form as this Lock-Up Agreement, beneficially owns, directly or indirectly, 50% or more of the common equity interests, or 50% or more of the voting power, in the undersigned.
If the undersigned is an officer (under the rules and regulations of FINRA) or director of the Company, (i) Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC will notify the Company of the impending release or waiver, and (ii) the Company has agreed or will agree in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver in accordance with the requirements under FINRA Rule 5131 (or any successor provision thereto). Any release or waiver granted by Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC hereunder to any such officer (under the rules and regulations of FINRA) or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply to the Early Release (as defined below) or if (a) the release or waiver is effected solely to permit a transfer not for consideration or to an immediate family member as defined in FINRA Rule 5130(i)(5) and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
Notwithstanding the foregoing, the Lock-Up Period shall expire (the Early Release) with respect to a number of shares equal to 15% of the aggregate number of shares of Common Stock owned by the undersigned or issuable upon exercise of vested equity awards owned by the undersigned (measured as of the date of the Measurement Date (as defined below)) immediately prior to the commencement of trading on the third Trading Day following the date
II-3
that the following conditions are met (the Measurement Date): (1) the latter of (a) the date the Company publishes its first quarterly or annual financial results following the Public Offering Date and (b) the 90th day following the Public Offering Date (the Threshold Date) and (2) the closing price of the Class A Common Stock of the Company on the New York Stock Exchange is at least 33% greater than the initial public offering price of the Shares to the public as set forth on the cover of the Prospectus for at least 10 Trading Days (including the Measurement Date) in any 15-day consecutive Trading Day period (the Measurement Period). For the avoidance of doubt, the Measurement Period may begin prior to or after the Threshold Date. The Company may, in its discretion, extend the date of the Early Release as reasonably needed for administrative processing or to the extent such release date would occur during a Company blackout period, in which case, the Company will publicly announce the date of the Early Release following the close of trading on the date that is at least two Trading Days prior to the Early Release.
Notwithstanding the foregoing, in addition to, and not by way of limitation of, any transfers by the undersigned that are permitted pursuant to the preceding paragraph, the undersigned may
(a) transfer the undersigneds shares of Common Stock and Derivative Instruments:
(d) as a bona fide gift or gifts or charitable contribution, or for bona fide estate planning purposes; provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein;
(e) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, or if the undersigned is a trust, to a trustor or beneficiary of the trust, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein; and provided further that any such transfer shall not involve a disposition for value;
(f) in connection with the sale or other Transfer of the undersigneds shares of Common Stock of the Company acquired in the Public Offering if the undersigned is not a director or officer of the Company or other securities acquired in open market transactions after the completion of the Public Offering;
(g) upon death, by will or intestacy, provided that the legatee, heir or other transferee, as the case may be, agrees to be bound in writing by the restrictions set forth herein;
(h) to any immediate family member, provided that such immediate family member agrees to be bound by the restrictions set forth herein;
(i) to a partnership, limited liability company or other entity of which the undersigned and the immediate family members of the undersigned are the legal and beneficial owner of all of the outstanding equity securities or similar interests, provided that the transferee agrees to be bound in writing by the restrictions set forth herein;
(j) by operation of law or pursuant to a qualified domestic order or in connection with a divorce settlement or any related court order, provided that such transferee agrees to be bound in writing by the restrictions on transfer set forth herein;
(k) as part of a distribution, transfer or disposition without consideration by the undersigned to its limited or general partners, members or equity holders, or to any investment
II-4
fund or other entity controlling, controlled by, managing or managed by or under common control or management with the undersigned or affiliates of the undersigned (including, for the avoidance of doubt, where the undersigned is a partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership), provided that the transferee agrees to be bound in writing by the restrictions set forth herein;
(l) in connection with the reclassification of the outstanding capital stock of the Company as described in the Prospectus, provided that any such shares of Common Stock received upon such reclassification shall remain subject to the provisions of this Lock-Up Agreement;
(m) pursuant to a bona fide third-party merger, consolidation, tender offer or other similar transaction involving a Change of Control (as defined below)) of the Company occurring after the settlement of the Public Offering that is approved by the Companys board of directors and made to all holders of the Companys capital stock, provided that all of the undersigneds Common Stock or Derivative Instruments subject to this Lock-Up that are not so transferred, tendered or otherwise disposed of remain subject to this Lock-Up Agreement; and provided further that, in the event that such Change of Control is not completed, the undersigneds shares of Common Stock and Derivate Instruments shall remain subject to the restrictions contained in this Lock-Up Agreement and title to the undersigneds shares of Common Stock or Derivative Instruments of the Company shall remain with the undersigned;
(n) to the Company pursuant to contractual arrangements under which the Company has, in connection with the termination of service of the undersigned, (A) the option to repurchase such shares of Common Stock or Derivative Instruments or (B) a right of first refusal with respect to transfers of such shares of Common Stock or Derivative Instruments; provided that in the case of clauses (A) and (B) above, (1) such contractual arrangement (or a form thereof) is described in the Prospectus or filed as an exhibit to the Registration Statement and (2) such contractual arrangement is in effect on the date of the Prospectus;
(o) to the Underwriters pursuant to the Underwriting Agreement;
(p) in connection with the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase the shares of Common Stock (including, in each case, by way of net or cashless exercise), including (A) any transfer to the Company for the payment of exercise price, tax withholdings or remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, options or rights, and (B) any transfer of shares of Common Stock necessary to generate such amount of cash needed for the payment of withholding taxes due as a result of the vesting or settlement of restricted stock units or the exercise of options or other rights to purchase shares of Common Stock, in all such cases, pursuant to equity awards granted under a stock incentive plan or other equity award plan, which plan is described in the Prospectus; or
(q) with the prior written consent of Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC on behalf of the Underwriters; and
(b) enter into a written plan meeting the requirements of Rule 10b5-1 under the Exchange Act relating to the transfer, sale or other disposition of securities of the undersigned, if then permitted by the Company; provided that the securities subject to the plan may not be sold during the Lock-Up Period (except to the extent otherwise allowed pursuant to clause (a) above) and no public announcement or filing under the Exchange Act, or any other public filing or announcement, shall be required or shall be voluntarily made regarding the establishment of such plan during the Lock-Up Period.
II-5
Notwithstanding anything to the contrary, in the case of clauses (i) through (iii), (v), (vi), (viii) and (xi)(B) above, no filing under the Exchange Act or any other public filing or disclosure reporting a reduction in beneficial ownership of shares of Common Stock or Derivative Instruments by or on behalf of the undersigned shall be required or voluntarily made during the Lock-Up Period; in the case of any transfers pursuant to clauses (iv), (vii), (ix), (xi)(A) and (xiii) above, any filing that is required under the Exchange Act to be made during the Lock-Up Period shall clearly indicate in the footnotes thereto that the filing relates to the circumstances described in such clauses; and in the case of any transfers pursuant to clauses (ii), (iv) and (v), any such transfer shall not involve a disposition for value.
For purposes of this Lock-Up Agreement, (i) immediate family shall mean any relationship by blood, marriage, domestic partnership or adoption, not more remote than first cousin, (ii) a Trading Day is a day on which the New York Stock Exchange is open for the buying and selling of securities and (iii) Change of Control shall mean the transfer (whether by bona fide tender offer, merger, consolidation or other similar transaction), in one transaction or a series of related transactions, to a person (as defined in Section 13(d)(3) of the Exchange Act) or group of affiliated persons (other than the Company), of the Companys voting securities if, after such transfer, such person or group of affiliated persons would hold more than 50% of the outstanding voting power of the voting share capital of the Company (or the surviving entity).
The undersigned now has, and, except as contemplated by clause (a) above, for the duration of this Lock-Up Agreement will have, good and marketable title to the undersigneds shares of Common Stock of the Company, free and clear of all liens, encumbrances and claims whatsoever. The undersigned also agrees and consents to the entry of stop transfer instructions with the Companys transfer agent and registrar against the transfer of the undersigneds shares of Common Stock of the Company except in compliance with the foregoing restrictions.
The undersigned acknowledges and agrees that none of the Underwriters has made any recommendation or provided any investment or other advice to the undersigned with respect to this Lock-Up Agreement or the subject matter hereof, and the undersigned has consulted its own legal, accounting, financial, regulatory, tax and other advisors with respect to this Lock-Up Agreement and the subject matter hereof to the extent the undersigned has deemed appropriate. The undersigned further acknowledges and agrees that, although the Underwriters may provide certain Regulation Best Interest and Form CRS disclosures or other related documentation to you in connection with the Public Offering, the Underwriters are not making a recommendation to you to participate in the Public Offering or sell any shares at the price determined in the Public Offering, and nothing set forth in such disclosures or documentation is intended to suggest that any Underwriter is making such a recommendation.
This Lock-Up Agreement may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com or www.echosign.com) or other transmission method, and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
II-6
Notwithstanding anything to the contrary contained herein, this Lock-Up Agreement (and the Lock-Up Period described herein) will automatically terminate and the undersigned will be released from all of his, her or its obligations hereunder upon the earliest to occur, if any, of (i) prior to the execution of the Underwriting Agreement, the Company advises the Representatives in writing that it has determined not to proceed with the Public Offering, (ii) the Company files an application to withdraw the Registration Statement, (iii) the Underwriting Agreement is executed but is terminated (other than the provisions thereof which survive termination) prior to payment for and delivery of the Shares to be sold thereunder, or (iv) August 31, 2021, in the event that the Underwriting Agreement has not been executed by such date; provided, however, that the Company may, by written notice to you prior to such date, extend such date in clause (iv) for a period of up to three additional months.
This Lock-Up Agreement shall be governed by and construed in accordance with the laws of the State of New York.
[Signature Page Follows]
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The undersigned understands that the Company and the Underwriters are relying upon this Lock-Up Agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this Lock-Up Agreement is irrevocable and shall be binding upon the undersigneds heirs, legal representatives, successors and assigns.
Very truly yours, | ||
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Name of Security Holder (Print exact name) | ||
By: |
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Signature | ||
If not signing in an individual capacity: | ||
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Name of Authorized Signatory (Print) | ||
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Title of Authorized Signatory (Print) | ||
(indicate capacity of person signing if signing as custodian, trustee or on behalf of an entity) |
II-8
Exhibit 3.1
CERTIFICATE OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIGS, INC.
The undersigned, Catherine Spear, certifies that she is the President of Figs, Inc. (the Corporation), a corporation organized and existing under the laws of the State of Delaware and does hereby further certify as follows:
1. |
The name of the Corporation is Figs, Inc. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware on January 28, 2013, and was amended and restated on May 2, 2016 (The First Amended and Restated Certificate of Incorporation). |
2. |
This Second Amended and Restated Certificate of Incorporation of the Corporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation. |
3. |
The text of the First Amended and Restated Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: |
FIRST
The name of the corporation is Figs, Inc. (the Corporation).
SECOND
The address of the registered office of the Corporation in the State of Delaware is 160 Greentree Drive, Suite 101, City of Dover, County of Kent, Zip Code 19904, and the name of the registered agent of the Corporation in the State of Delaware at such address is National Registered Agents, Inc.
THIRD
The nature of the business or purposes to be conducted or prompted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL).
FOURTH
The total number of shares of stock which the Corporation is authorized to issue is 15,000,000 shares of Common Stock, with a par value of $0.0001 per share.
FIFTH
The Corporation shall have perpetual existence.
SIXTH
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors of the Corporation (the Board) or as set forth in the Bylaws of the Corporation. Election of directors need not be by written ballot unless the Bylaws of the Corporation so provide.
SEVENTH
In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation; provided that any bylaws adopted or amended by the Board, and any powers thereby conferred, may be amended, altered or repealed by the stockholders.
EIGHTH
To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or to its stockholders for monetary damages for any breach of fiduciary duty as a director. No amendment to, modification of or repeal of this paragraph seven shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
NINTH
The Corporation shall indemnify, advance expenses, and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a Covered Person) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a Proceeding), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except for claims for indemnification (following the final disposition of such Proceeding) or advancement of expenses not paid in full, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board. Any amendment, repeal or modification of this paragraph 8 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.
TENTH
Section 203 of the DGCL shall not apply to any business combination (as defined in Section 203(c)(3) of the DGCL) in which the Corporation shall engage.
ELEVENTH
In the event that any member of the Board who is not an employee of the Corporation, including any member of the Board who is also a member, partner, manager or employee of an entity that is a holder of Common Stock and that is in the business of investing and reinvesting in other entities, or an employee of an entity that manages such an entity (each, an Investment Entity), acquires knowledge of a potential transaction or other matter other than directly in connection with such individuals service as a member of the Board (including, if applicable, in such individuals capacity as a member, partner, manager or employee of an Investment Entity) that may be an opportunity of interest for both the Corporation and such individual or Investment Entity (a Corporate Opportunity), then, provided that such director has acted in good faith, the Corporation: (i) renounces any interest or expectancy that such director or Investment Entity offer an opportunity to participate in such Corporate Opportunity to the Corporation, and (ii) to the fullest extent permitted by law, waives any claim that such opportunity constituted a Corporate Opportunity that should have been presented by such director or Investment Entity to the Corporation.
TWELTH
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of Incorporation has been executed by its duly authorized officer this 27th day of October, 2017.
FIGS, INC. | ||
By: |
/s/ Catherine Spear |
|
Name: | Catherine Spear | |
Title: | President |
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIGS, INC.
Figs, Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the DGCL), certifies as follows:
FIRST: The name of this corporation is Figs, Inc. (hereinafter referred to as the Company) and this corporation was originally incorporated pursuant to the DGCL on January 28, 2013.
SECOND: Pursuant to Section 242 of the DGCL, this Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company (the Certificate of Amendment) amends the Amended and Restated Certificate of Incorporation of the Company (the Certificate) as set forth below.
1. |
Article Fourth of the Certificate is amended and restated to read in its entirety as follows: |
The total number of shares of stock which the Corporation is authorized to issue is 19,000,000 shares of Common Stock, with a par value of $0.0001 per share.
THIRD: The foregoing Certificate of Amendment has been duly approved and adopted by the Board of Directors and stockholders of the Company in accordance with Sections 141, 228 and 242 of the DGCL.
FOURTH: Other than as set forth in this Certificate of Amendment, the Certificate shall remain in full force and effect, without modification, amendment or change.
[Signature page follows]
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of Amended and Restated Certificate of Incorporation to be executed by a duly authorized officer of the Company on this 11 day of May, 2018.
FIGS, INC. | ||
By: |
/s / Catherine Spear |
|
Name: | Catherine Spear | |
Title: | President |
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIGS, INC.
Figs, Inc. a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the DGCL), certifies as follows:
FIRST: The name of this corporation is Figs, Inc. (hereinafter referred to as the Company) and this corporation was originally incorporated pursuant to the DGCL on January 28, 2013.
SECOND: Pursuant to Section 242 of the DGCL, this Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company (the Certificate of Amendment) amends the Amended and Restated Certificate of Incorporation of the Company (the Certificate) as set forth below.
1. |
Article Fourth of the Certificate is amended and restated to read in its entirety as follows: |
The total number of shares of stock which the Corporation is authorized to issue is 23,000,000 shares of Common Stock, with a par value of $0.0001 per share.
THIRD: The foregoing Certificate of Amendment has been duly approved and adopted by the Board of Directors and stockholders of the Company in accordance with Sections 141, 228 and 242 of the DGCL.
FOURTH: Other than as set forth in this Certificate of Amendment, the Certificate shall remain in full force and effect, without modification, amendment or change.
[Signature page follows]
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment of Amended and Restated Certificate of Incorporation to be executed by a duly authorized officer of the Company on June 26, 2020.
FIGS, INC. | ||
By: |
/s/ Catherine Spear |
|
Name: | Catherine Spear | |
Title: | President |
CERTIFICATE OF AMENDMENT
TO THE
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIGS, INC.
FIGS, Inc. (the Corporation), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the DGCL), does hereby certify:
FIRST: The name of the Corporation is FIGS, Inc. The Corporation was incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on January 28, 2013.
SECOND: This Certificate of Amendment (the Certificate of Amendment), which amends the Corporations Second Amended and Restated Certificate of Incorporation (as amended and currently in effect, the Certificate of Incorporation), has been adopted by the Board of Directors of the Corporation in accordance with Sections 141 and 242 of the DGCL, and has been adopted by the written consent of the stockholders of the Corporation in accordance with Sections 228 and 242 of the DGCL.
THIRD: The paragraph set forth in Article FOURTH of the Certificate of Incorporation is hereby deleted in its entirety and replaced with the following:
The total number of shares of stock that the Corporation is authorized to issue is 207,000,000 shares of common stock, par value $0.0001 per share (the Common Stock).
Effective on the filing of this Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware (the Effective Time), each share of Common Stock issued and outstanding and held of record by each stockholder of the Corporation (including treasury shares) shall, automatically and without any further action on the part of any stockholder of the Corporation, be converted into nine (9) validly issued, fully paid and non-assessable shares of Common Stock (the Forward Stock Split). The par value of the Common Stock following the Forward Stock Split shall remain at $0.0001 per share. No fractional shares of Common Stock shall be issued as a result of the Forward Stock Split and, in lieu thereof, any person who would otherwise be entitled to a fractional share of Common Stock as a result of the Forward Stock Split, following the Effective Time, shall be entitled to receive a cash payment equal to the fraction of which such holder would otherwise be entitled multiplied by the fair value per share as determined in good faith by the Board (as defined below).
The Forward Stock Split shall occur whether or not the stock certificates representing such shares of Common Stock are surrendered to the Corporation or its transfer agent. Each stock certificate that, immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock after the Effective Time into which the shares formerly represented by such certificate have been converted (as well as the right to receive cash in lieu of fractional shares of Common Stock after the Effective Time).
[Signature page follows.]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation to be executed in its name and on its behalf by its Co-Chief Executive Officer on this 19th day of May, 2021.
FIGS, INC. |
/s/ Catherine Spear |
Catherine Spear |
Co-Chief Executive Officer |
Exhibit 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FIGS, INC.
FIGS, Inc. (the Corporation), a corporation organized and existing under the General Corporation Law of the State of Delaware (the DGCL), does hereby certify as follows:
1. The name of the Corporation is FIGS, Inc. The Corporation was incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on January 28, 2013.
2. This Amended and Restated Certificate of Incorporation (the Certificate of Incorporation), which amends, restates and further integrates the certificate of incorporation of the Corporation as heretofore in effect, has been adopted by the Corporation in accordance with Sections 242 and 245 of the DGCL, and has been adopted by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.
3. The text of the certificate of incorporation of the Corporation, as heretofore amended, is hereby amended and restated by this Certificate of Incorporation to read in its entirety as set forth in EXHIBIT A attached hereto.
IN WITNESS WHEREOF, FIGS, Inc. has caused this Certificate of Incorporation to be signed by a duly authorized officer of the Corporation, on [ 🌑 ], 2021.
FIGS, Inc. | ||
By: |
|
|
Name: Catherine Spear | ||
Title: Co-Chief Executive Officer |
[Signature Page to FIGS, Inc. Certificate of Incorporation]
EXHIBIT A
ARTICLE I
The name of the corporation is FIGS, Inc. (the Corporation).
ARTICLE II
The address of the Corporations registered office in the State of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL) as it now exists or may hereafter be amended and supplemented.
ARTICLE IV
The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 1,250,000,000 shares, consisting of 1,000,000,000 shares of Class A Common Stock, par value $0.0001 per share (Class A Common Stock), 150,000,000 shares of Class B Common Stock, par value $0.0001 per share (Class B Common Stock and, together with the Class A Common Stock, the Common Stock), and 100,000,000 shares of Preferred Stock, par value $0.0001 per share (Preferred Stock).
The number of authorized shares of Class A Common Stock, Class B Common Stock or Preferred Stock may be increased or decreased (but not below (i) the number of shares thereof then outstanding and (ii) with respect to the Class A Common Stock, the number of shares of Class A Common Stock reserved pursuant to Section 8 of Part A of Article IV) by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Immediately upon the filing and effectiveness of this Certificate of Incorporation with the Secretary of State of the State of Delaware (the Effective Time), automatically and without further action on the part of holders of capital stock of the Corporation, each share of the common stock, par value $0.0001 per share, of the Corporation outstanding or held by the Corporation as treasury stock as of immediately prior to the Effective Time (the Pre-IPO Common Stock) shall be reclassified as, and become, one (1) validly issued, fully paid and non-assessable share of Class A Common Stock. Each certificate previously representing shares of Pre-IPO Common Stock shall from and after the Effective Time, represent the number of shares of Class A Common Stock into which the shares of Pre-IPO Common Stock previously represented thereby were reclassified pursuant hereto.
2
The designations and the powers, preferences, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation are as follows:
A Common Stock.
1. Equal Status; General. Except as otherwise provided herein or required by law, shares of Class A Common Stock and Class B Common Stock shall have the same rights, privileges, preferences and powers, rank equally (including as to dividends and distributions, and upon any liquidation, dissolution, distribution of assets or winding up of the Corporation), share ratably and be identical in all respects and as to all matters. The voting, dividend, liquidation and other rights, preferences and powers of the holders of Common Stock are subject to and qualified by the rights, powers and preferences of any series of Preferred Stock as may be designated by the Board of Directors of the Corporation (the Board of Directors) and outstanding from time to time.
2. Voting. Except as otherwise provided herein or expressly required by law, at all meetings of stockholders and on all matters submitted to a vote of stockholders of the Corporation generally, (i) each holder of Class A Common Stock, as such, shall have the right to one (1) vote per share of Class A Common Stock held of record by such holder, and (ii) each holder of Class B Common Stock, as such, shall have the right to twenty (20) votes per share of Class B Common Stock held of record by such holder. Except as otherwise provided herein or required by law, the holders of shares of Class A Common Stock and Class B Common Stock, as such, shall (a) at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Corporation generally, and (b) be entitled to notice of any stockholders meeting in accordance with the Amended and Restated Bylaws of the Corporation (as the same may be amended and/or restated from time to time, the Bylaws); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation (as defined herein)) or pursuant to the DGCL. There shall be no cumulative voting.
3. Dividend Rights. Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share basis, with respect to any dividends as may be declared and paid from time to time by the Board of Directors out of any assets of the Corporation legally available therefor; provided, however, that in the event a dividend is paid in the form of shares of Class A Common Stock or Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares), then holders of Class A Common Stock shall be entitled to receive shares of Class A Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be) and holders of Class B Common Stock shall be entitled to receive shares of Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may be), with holders of shares of Class A Common Stock and Class B Common Stock receiving, on a per share basis, an identical number of shares of Class A Common Stock or Class B Common Stock (or rights to acquire, or securities convertible into or exchangeable for, such shares, as the case may
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be), as applicable. Notwithstanding the foregoing, the Board of Directors may pay or make a disparate dividend per share of Class A Common Stock or Class B Common Stock (whether in the amount of such dividend payable per share, the form in which such dividend is payable, the timing of the payment, or otherwise) if such disparate dividend is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
4. Subdivisions, Combinations or Reclassifications. Shares of Class A Common Stock or Class B Common Stock may not be subdivided, combined or reclassified unless the shares of the other classes are concurrently therewith proportionately subdivided, combined or reclassified in a manner that maintains the same proportionate equity ownership among the holders of the outstanding Class A Common Stock and Class B Common Stock on the record date for such subdivision, combination or reclassification; provided, however, that shares of one such class may be subdivided, combined or reclassified in a different or disproportionate manner if such subdivision, combination or reclassification is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
5. Liquidation, Dissolution or Winding Up. Subject to the preferential or other rights of any holders of Preferred Stock then outstanding, upon the dissolution, distribution of assets, liquidation or winding up of the Corporation, whether voluntary or involuntary, holders of Class A Common Stock and Class B Common Stock will be entitled to receive ratably all assets of the Corporation available for distribution to its stockholders in proportion to the number of shares held by each such stockholder, unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution, distribution of assets or winding up is approved by the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting separately as a class. A consolidation, reorganization or merger of the Corporation with any other person or persons, or a sale of all or substantially all of the assets of the Corporation, shall not be considered to be a dissolution, liquidation or winding up of the Corporation within the meaning of this Section 5.
6. Merger or Consolidation. In the case of any consolidation or merger of the Corporation with or into any other entity, the holders of shares of Class A Common Stock or Class B Common Stock have the right to receive, or the right to elect to receive, consideration or payment that shall be identical to and made ratably on a per share basis among the holders of the Class A Common Stock and Class B Common Stock as a single class; provided, however, that, if such distribution, payment or consideration consists, in whole or in part, of shares of capital stock or other equity interests, holders of shares of Class A Common Stock or Class B Common Stock may receive, or have the right to elect to receive, different or disproportionate consideration in connection with such consolidation, merger or other transaction only if and solely to the extent that the difference in the per share consideration to the holders of the Class A Common Stock and Class B Common Stock is that any securities distributed to the holder of, or issuable upon the conversion of, a share of Class B Common Stock have twenty (20) times the voting power of any securities distributed to the holder of, or issuable upon the conversion of, a share of Class A Common Stock.
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7. Conversion.
7.1. Optional Conversion of Class B Common Stock. Each share of Class B Common Stock shall be convertible into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock at the option of the holder thereof at any time upon written notice to the Corporation.
7.2. Automatic Conversion of Class B Common Stock Upon Transfer. With respect to each holder of Class B Common Stock, upon the occurrence of a Transfer (as defined in Section 9 of Part A of Article IV), other than a Permitted Transfer (as defined in Section 9 of Part A of Article IV), of shares of Class B Common Stock held by such holder, each share subject to such Transfer shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock.
7.3. Automatic Conversion of Class B Common Stock Upon Reduction in Ownership. With respect to Tulco, LLC and its Permitted Transferees (collectively Tulco), at 5:00 p.m. (New York City time) on a date fixed by the Board of Directors that is not less than 60 days nor more than 180 days following the date that the aggregate number of shares of all classes of Common Stock then held by Tulco ceases to represent at least 20% of the aggregate number of then-outstanding shares of all classes of Common Stock (calculated on a diluted basis to include any issued and outstanding stock options, restricted stock units or other equity awards, whether vested or unvested, of the Corporation), each share of Class B Common Stock then held by Tulco shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock.
7.4. Final Conversion of All Shares of Class B Common Stock. Each share of outstanding Class B Common Stock shall automatically, without further action by the Corporation or the holder thereof, convert into one (1) validly issued, fully paid and nonassessable share of Class A Common Stock upon the earlier to occur of the following (each, a Final Conversion Event): (i) 5:00 p.m. (New York City time) on the date that is ten (10) years following the closing of the Corporations initial public offering of Class A Common Stock in a firm commitment underwritten offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act); and (ii) 5:00 p.m. (New York City time) on a date fixed by the Board of Directors that is not less than 60 days nor more than 180 days after the death or Disability of the last to die or become Disabled of the Founders.
7.5. Mechanics of Conversion.
7.5.1. Before any holder of Class B Common Stock shall be entitled to convert any shares of Class B Common Stock into shares of Class A Common Stock pursuant to Subsection 7.1 of Part A of Article IV, such holder shall surrender the certificate or certificates therefor (if any), duly endorsed, at the principal corporate office of the Corporation or of any transfer agent for the Class B Common Stock, and shall provide written notice to the Corporation at its principal corporate office, of such conversion election and shall state therein the name or names (i) in which the certificate or certificates representing the shares of Class A Common Stock into which the shares of
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Class B Common Stock are so converted are to be issued (if such shares of Class A Common Stock will be certificated) or (ii) in which such shares of Class A Common Stock are to be registered in book-entry form (if such shares of Class A Common Stock are uncertificated). If the shares of Class A Common Stock into which the shares of Class B Common Stock are to be converted are to be issued in a name or names other than the name of the holder of the shares of Class B Common Stock being converted, such notice shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder, or to the nominee or nominees of such holder, a certificate or certificates representing the number of shares of Class A Common Stock to which such holder shall be entitled upon such conversion (if such shares of Class A Common Stock are certificated) or shall register such shares of Class A Common Stock in book-entry form (if such shares of Class A Common Stock are uncertificated). Such conversion shall be deemed to be effective immediately prior to the close of business (i) with respect to certificated shares, on the date of such surrender of the certificate or certificates representing the shares of Class B Common Stock to be converted or (ii) with respect to shares that are uncertificated, immediately prior to the close of business on the date that the holder delivers notice of such conversion election as required by this Subsection to the Corporations transfer agent, and, in each case, the shares of Class A Common Stock issuable upon such conversion shall be deemed to be outstanding as of such time, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be deemed to be the record holder or holders of such shares of Class A Common Stock as of such time. Notwithstanding anything herein to the contrary, shares of Class B Common Stock represented by a lost, stolen or destroyed stock certificate may be converted pursuant to Subsection 7.1 of Part A of Article IV if the holder thereof notifies the Corporation or its transfer agent that such certificate has been lost, stolen or destroyed and provides an affidavit of that fact acceptable to the Corporation and executes an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate.
7.5.2. Each outstanding stock certificate (if shares are in certificated form) that, immediately prior to the occurrence of a conversion pursuant to Subsections 7.3 or 7.4 of Part A of Article IV represented one or more shares of Class B Common Stock subject to such conversion shall, upon such conversion, be deemed to represent an equal number of shares of Class A Common Stock, without the need for surrender or exchange thereof.
7.5.3. The Corporation shall, upon the request of any holder whose shares of Class B Common Stock have been converted into shares of Class A Common Stock as a result of any conversion pursuant to Subsections 7.1, 7.2, 7.3 or 7.4 of Part A of Article IV, and upon surrender by such holder to the Corporation of the outstanding certificate(s) formerly representing such holders shares of Class B Common Stock , if any (or, in the case of any lost, stolen or destroyed certificate, upon such holder providing an affidavit of that fact acceptable to the Corporation and executing an agreement acceptable to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificate), issue and deliver to such holder certificate(s) representing the shares of Class A Common Stock into which such holders shares of Class B Common Stock were converted as a result of such conversion (if such shares are certificated) or, if such shares are uncertificated, register such shares in book-entry form.
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7.5.4. Each share of Class B Common Stock that is converted pursuant to Subsection 7.1, 7.2, 7.3 or 7.4 of Part A of Article IV shall thereupon automatically be retired and shall not be available for reissuance.
7.5.5. The Corporation may, from time to time, establish such policies and procedures, not in violation of applicable law or the other provisions of this Certificate of Incorporation or Bylaws of the Corporation, relating to the conversion of the Class B Common Stock into Class A Common Stock, as it may deem necessary or advisable in connection therewith. If the Corporation has reason to believe that any circumstance giving rise to a conversion of shares of Class B Common Stock into Class A Common Stock in accordance with the provisions of this Section 7 of Part A of Article IV has occurred but has not theretofore been reflected on the books of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation), the Corporation may request that the holder of such shares furnish affidavits or other evidence to the Corporation as the Corporation deems necessary to determine whether a conversion of shares of Class B Common Stock to Class A Common Stock has occurred, and if such holder does not within ten (10) days after the date of such request furnish sufficient evidence to the Corporation (in the manner provided in the request) to enable the Corporation to determine that no such conversion has occurred, any such shares of Class B Common Stock, to the extent not previously converted, shall be automatically converted into shares of Class A Common Stock and the same shall thereupon be registered on the books and records of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation). In connection with any action of stockholders taken at a meeting, the stock ledger of the Corporation (or in book-entry as maintained by the transfer agent of the Corporation) shall be presumptive evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders and the class or classes or series of shares held by each such stockholder and the number of shares of each class or classes or series held by such stockholder.
8. Reservation of Stock. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of the shares of Class B Common Stock, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Class B Common Stock into shares of Class A Common Stock.
9. Definitions.
Affiliate means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another person.
Convertible Security shall mean any evidences of indebtedness, shares of Preferred Stock or other securities (other than shares of Class B Common Stock) convertible into or exchangeable for shares of Common Stock, either directly or indirectly.
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Disability means, with respect to an individual, permanent and total disability such that the individual is unable to engage in any substantial gainful activity by reason of any medically determinable mental impairment which would reasonably be expected to result in death or which has lasted or would reasonably be expected to last for a continuous period of not less than twelve (12) months as determined by a licensed medical practitioner. In the event of a dispute whether the individual has suffered a Disability, no Disability of the individual shall be deemed to have occurred unless and until an affirmative ruling regarding such Disability has been made by a court of competent jurisdiction, and such ruling has become final and nonappealable.
Family Member means with respect to any individual who is a Qualified Stockholder (a) the spouse of such Qualified Stockholder, (b) the parents, grandparents, lineal descendants, siblings or lineal descendants of siblings of such Qualified Stockholder or (c) the parents, grandparents, lineal descendants, siblings or lineal descendants of siblings of the spouse of such Qualified Stockholder. Lineal descendants shall include adopted persons, but only so long as they are adopted while a minor.
Founder means each of Heather Hasson and Catherine Spear.
Option shall mean rights, options, restricted stock units or warrants to subscribe for, purchase or otherwise acquire shares of Common Stock or Convertible Securities (as defined above).
Permitted Entity shall mean: (I) with respect to a Qualified Stockholder that is an individual, (a)(1) a Permitted Trust primarily for the benefit of (i) such Qualified Stockholder, (ii) one or more Family Members of such Qualified Stockholder, (iii) any organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code or (iv) any other Permitted Entity of such Qualified Stockholder or (2) an organization that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code, provided that, in each case, the Qualified Stockholder, either Founder or the Special Proxyholder (as defined in the Voting Agreement (as defined below)) holds, directly or indirectly, exclusive Voting Control with respect to such shares of Class B Common Stock; or (b)(1) any Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, or (2) a pension, profit sharing, stock bonus or other type of plan or trust of which such Qualified Stockholder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code (in the case of (b)(1) or (2), a Plan), provided that (i) a Transfer of Class B Common Stock to such Plan is not prohibited by the Employee Retirement Income Security Act of 1974 or any applicable law and (ii) such Plan or the individual(s) with Voting Control over the shares held by such Plan is legally and contractually permitted to become a party to the Voting Agreement in accordance with Section 8.13 thereof; or (II) with respect to a Qualified Stockholder that is an entity, any Affiliate of, or general partnership, limited partnership, limited liability company, corporation or other entity controlled by, such Qualified Stockholder or any other Permitted Entity of such Qualified Stockholder; provided that Permitted Entity shall not include any portfolio company of such Qualified Stockholder.
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Permitted Transfer shall mean, and be restricted to, any Transfer of a share of Class B Common Stock: (a) by a Qualified Stockholder to (i) any Permitted Entity of such Qualified Stockholder, or (ii) another Qualified Stockholder; or (b) by a Permitted Entity of a Qualified Stockholder to (i) such Qualified Stockholder, (ii) any other Permitted Entity of such Qualified Stockholder, or (iii) another Qualified Stockholder; provided, however, that, notwithstanding the foregoing, for so long as the Voting Agreement is in effect, no Transfer shall be a Permitted Transfer unless effective as of the consummation such Transfer, the person or entity that will have direct and exclusive Voting Control over the shares immediately following such Transfer shall either be a party to, or have executed the Joinder Agreement (as defined in the Voting Agreement) required by Section 8.13 of, the Voting Agreement.
Permitted Transferee shall mean a transferee of shares of Class B Common Stock received in a Permitted Transfer.
Permitted Trust shall mean a bona fide trust where each trustee is (a) (i) a Qualified Stockholder or the Special Proxyholder, (ii) a Family Member, or (iii) a professional in the business of providing trustee services, including private professional fiduciaries, trust companies and bank trust departments, and (b) legally and contractually permitted to become a party to the Voting Agreement in accordance with Section 8.13 thereof.
Qualified Stockholder shall mean: (a) the record holder of a share of Class B Common Stock as of 11:59 p.m. (New York City time) on the date when the Effective Time occurs; (b) the initial record holder of any shares of Class B Common Stock that are originally issued by the Corporation after the Effective Time pursuant to the exercise or conversion of any Option or Convertible Security that, in each case, was outstanding as of the Effective Time; and (c) a Permitted Transferee.
Transfer of a share of Class B Common Stock shall mean any sale, assignment, transfer, conveyance, hypothecation or other transfer or disposition of such share or any legal or beneficial interest in such share, whether or not for value and whether voluntary or involuntary or by operation of law, including, without limitation, a transfer of a share of Class B Common Stock to a broker or other nominee (regardless of whether there is a corresponding change in beneficial ownership), or the transfer of, or entering into a binding agreement with respect to, Voting Control over such share by proxy or otherwise; provided, however, that the following shall not be considered a Transfer within the meaning of this Section 9 of Part A of Article IV:
(i) the granting of a revocable proxy to officers or directors of the Corporation at the request of the Board of Directors in connection with actions to be taken at an annual or special meeting of stockholders;
(ii) entering into a voting trust, agreement or arrangement (with or without granting a proxy) solely with stockholders who are holders of Class B Common Stock, which voting trust, agreement or arrangement does not involve any payment of cash, securities or other property to the holder of the shares subject thereto other than the mutual promise to vote shares in a designated manner; for the avoidance of doubt, any voting trust, agreement or arrangement entered into prior to the Effective Time shall not constitute a Transfer;
(iii) entering into a voting trust, agreement or arrangement (with or without granting a proxy) pursuant to a written agreement to which the Corporation is a party or taking any actions contemplated thereby;
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(iv) the pledge of shares of Class B Common Stock by a stockholder that creates a mere security interest in such shares pursuant to a bona fide loan or indebtedness transaction for so long as such stockholder continues to exercise Voting Control over such pledged shares; provided, however, that a foreclosure on such shares or other similar action by the pledgee shall constitute a Transfer unless such foreclosure or similar action otherwise qualifies as a Permitted Transfer;
(v) the fact that, as of the Effective Time or at any time after the Effective Time, the spouse of any holder of Class B Common Stock possesses or obtains an interest in such holders shares of Class B Common Stock arising solely by reason of the application of the community property laws of any jurisdiction, so long as no other event or circumstance shall exist or have occurred that constitutes a Transfer of such shares of Class B Common Stock; provided that, any transfer of shares by any holder of shares of Class B Common Stock to such holders spouse, including a transfer in connection with a divorce proceeding, domestic relations order or similar legal requirement, shall constitute a Transfer of such shares of Class B Common Stock, unless otherwise exempt from the definition of Transfer;
(vi) entering into a trading plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the Exchange Act), with a broker or other nominee; provided, however, that a sale of such shares of Class B Common Stock, pursuant to such plan shall constitute a Transfer at the time of such sale; and
(vii) in connection with a merger or consolidation of the Corporation with or into any other entity, or in the case of any other transaction having an effect on stockholders substantially similar to that resulting from a merger or consolidation, such as the sale, lease, exchange, or other disposition (other than liens and encumbrances created in the ordinary course of business, including liens or encumbrances to secure indebtedness for borrowed money that are approved by the Board of Directors, so long as no foreclosure occurs in respect of any such lien or encumbrance) of all or substantially all of the Corporations property and assets, that has been approved by the Board of Directors, the entering into a support, voting, tender or similar agreement or arrangement (in each case, with or without the grant of a proxy) that has also been approved by the Board of Directors or the consummation of the actions or transactions contemplated therein (including, without limitation, voting, tendering, selling, exchanging, or otherwise transferring or disposing of shares of Class B Common Stock or any legal or beneficial interest therein).
Voting Control means, with respect to a share of Class B Common Stock, the power (whether exclusive or shared) to vote or direct the voting of such share by proxy, voting agreement or otherwise.
Voting Agreement means that certain Voting Agreement, dated as of [], 2021, by and among the Corporation, the Founders, Tulco, LLC and the other parties named therein, as may be amended, restated, supplemented and/or otherwise modified from time to time in accordance with its terms.
B Preferred Stock.
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Shares of Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the creation and issuance of such series adopted by the Board of Directors as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law.
Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designation relating thereto in accordance with the DGCL (a Certificate of Designation), to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, and to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the creation and issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law and this Certificate of Incorporation (including any Certificate of Designation). Except as otherwise required by law, holders of any series of Preferred Stock shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any Certificate of Designation).
ARTICLE V
For the management of the business and for the conduct of the affairs of the Corporation it is further provided that:
A General Powers. Except as otherwise expressly provided by the DGCL or this Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
B Number of Directors; Election of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors and subject to the terms of the Voting Agreement, the number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.
C Classes of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect directors, the directors of the Corporation are hereby classified with respect to the time for which they severally hold office into three classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of such directors. The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the time at which the initial classification of the Board of Directors becomes effective; the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the time at which the initial classification of the Board of
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Directors becomes effective; and the initial Class III directors shall serve for a term expiring at the third annual meeting following the time at which the initial classification of the Board of Directors becomes effective. At each annual meeting of stockholders of the Corporation following the time at which the initial classification of the Board of Directors becomes effective, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The Board of Directors is authorized to assign members of the Board of Directors already in office to a class at the time such classification becomes effective.
D Term and Removal. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Voting Agreement, each director shall hold office until the annual meeting at which such directors term expires and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification or removal. No decrease in the number of directors shall shorten the term of any incumbent director. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Voting Agreement, the Board of Directors or any individual director may be removed from office at any time and only for cause by the affirmative vote of the holders of capital stock representing a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class.
E Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock to elect directors and the rights granted pursuant to the Voting Agreement, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board of Directors that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall be filled solely by the affirmative vote of a majority of the total number of directors then in office, even if less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders unless the Board of Directors determines by resolution that any such vacancy or newly created directorship shall be filled by the stockholders. Any director elected to fill a newly created directorship or vacancy in accordance with the preceding sentence shall hold office until the next annual meeting of stockholders held to elect the class of directors to which such director is elected and until his or her successor is duly elected and qualified or until his or her earlier death, resignation, retirement, disqualification, or removal.
F Preferred Stock Directors. Whenever the holders of any series of Preferred Stock issued by the Corporation shall have the right as provided for herein (including any Certificate of Designation), voting separately as a series or separately as a class with one or more such other series, to elect directors, the election, term of office, removal and other features of such directorships shall be governed by the terms of this Certificate of Incorporation (including any Certificate of Designation). Notwithstanding anything to the contrary in this Article V, during the period when the holders of any series of Preferred Stock issued by the Corporation shall have the right to elect additional directors, the number of directors to be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to paragraph B of this Article V, and the total number of directors constituting the whole Board of Directors shall be automatically increased by such number of directors to be elected by the holders of any such series of Preferred Stock and each such additional director shall serve until such directors successor shall have been duly elected and qualified, or until such directors right to hold such office
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terminates pursuant to said provisions, whichever occurs earlier, subject to his earlier death, disqualification, resignation or removal. Except as otherwise provided in the Certificate of Designation(s) in respect of any series of Preferred Stock, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of this Certificate of Incorporation (including any Certificate of Designation), the terms of office of all such additional directors elected by the holders of such series of Preferred Stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate (in which case each such director thereupon shall cease to be qualified as, and shall cease to be, a director) and the total authorized number of directors of the Corporation shall automatically be reduced accordingly.
G Vote by Ballot. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
ARTICLE VI
A Consent of Stockholders In Lieu of Meeting. Subject to the rights of the holders of any series of Preferred Stock, at any time when the holders of Class B Common Stock beneficially own, in the aggregate, at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents, setting forth the action so taken, are (1) signed by the holders of outstanding shares of the relevant class(es) or series of stock of the Corporation representing not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation then issued and outstanding (other than treasury stock) entitled to vote thereon were present and voted, and (2) delivered to the Corporation in accordance with applicable law. Subject to the rights of the holders of any series of Preferred Stock, at any time when the holders of Class B Common Stock beneficially own, in the aggregate, less than the majority of the voting power of all of the then outstanding shares of capital stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders of the Corporation, and shall not be taken by consent in lieu of a meeting.
B Special Meetings of Stockholders. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, at any time only by or at the direction of (i) the Chairperson of the Board of Directors (if any), (ii) the Chief Executive Officer or a Co-Chief Executive Officer or (iii) the Board of Directors pursuant to a resolution adopted by the Board of Directors.
C Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws of the Corporation.
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ARTICLE VII
No director of the Corporation shall have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. Any amendment, repeal or modification of this Article VIII, or the adoption of any provision of the Certificate of Incorporation inconsistent with this Article VII, shall not adversely affect any right or protection of a director of the Corporation with respect to any act or omission occurring prior to such amendment, repeal, modification or adoption. If the DGCL is amended after approval by the stockholders of this Article VII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.
ARTICLE VIII
The Corporation shall have the power to provide rights to indemnification and advancement of expenses to its current and former officers, directors, employees and agents and to any person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.
ARTICLE IX
Unless the Corporation consents in writing to the selection of an alternative forum, (a) (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of the Corporation to the Corporation or the Corporations stockholders (iii) any action asserting a claim arising pursuant to any provision of the DGCL, this Certificate of Incorporation, the Bylaws (as either may be amended and/or restated from time to time) or as to which the DGCL confers exclusive jurisdiction on the Court of Chancery of the State of Delaware (the Court of Chancery), or (iv) any action asserting a claim governed by the internal affairs doctrine, be exclusively brought in the Court of Chancery or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (b) the federal district courts of the United States (the Federal Courts) shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. If any action, the subject matter of which is within the scope of the first sentence of this Article IX, is filed in a court other than the Court of Chancery or the Federal Courts, as applicable, (a Foreign Action) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the Court of Chancery or the Federal Courts, as applicable, in connection with any action brought in any such court to enforce the first sentence of this Article IX and (ii) having service of process made upon such stockholder in any such action by service upon such stockholders counsel in the Foreign Action as agent for such stockholder. To the fullest extent permitted by law, any person purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article IX. Notwithstanding the foregoing, this Article IX shall not apply to claims seeking to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the U.S. federal courts have exclusive jurisdiction.
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ARTICLE X
A Amendment of the Certificate of Incorporation. The Corporation reserves the right to amend, alter, change, adopt or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of shares of any class or series of capital stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or adopt any provision of this Certificate of Incorporation inconsistent with Articles IV, V, VI, VII, VIII, IX and this Article X; provided, however, for so long as any shares of Class B Common Stock remain outstanding, the Corporation shall not, without the prior affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding shares of Class B Common Stock, voting as a separate class, in addition to any other vote required by law or this Certificate of Incorporation and subject to the terms of the Voting Agreement, directly or indirectly, amend, alter, change, repeal or adopt any provision inconsistent with Part A of Article IV or this proviso of this Part A of Article X.
B Amendment of Bylaws. In furtherance and not in limitation of the powers conferred upon it by the DGCL, the Board of Directors shall have the power to adopt, amend, alter or repeal the Bylaws of the Corporation. The stockholders may not adopt, amend, alter or repeal the Bylaws of the Corporation unless such action is approved, in addition to any other vote required by this Certificate of Incorporation, by the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
C Severability. If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not, to the fullest extent permitted by applicable law, in any way be affected or impaired thereby and (ii) to the fullest extent permitted by applicable law, the provisions of this Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service to or for the benefit of the Corporation to the fullest extent permitted by law.
15
Exhibit 4.2
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement (this Agreement) is entered into as of October 23, 2020 (the Effective Date), by and among FIGS, Inc., a Delaware corporation (the Company), the holders of the Common Stock listed on the Schedule of Investors attached as Schedule A hereto (the Investors), Heather Hasson, Catherine Spear (Hasson and Spear, together, the Founders and each, a Founder), the Heather Hasson Revocable Trust, the Catherine Spear Revocable Trust, the Wingaersheek Irrevocable Trust I u/a/d 10/15/2020, the Wingaersheek Irrevocable Trust II u/a/d 10/15/2020, the Maple Tree Irrevocable Trust u/a/d 10/16/2020 (the Heather Hasson Revocable Trust, the Catherine Spear Revocable Trust, the Wingaersheek Irrevocable Trust I u/a/d 10/15/2020, the Wingaersheek Irrevocable Trust I u/a/d 10/15/2020 and the Maple Tree Irrevocable Trust u/a/d 10/16/2020, the Founder Trusts and each a Founder Trust), and each other holder of equity securities of the Company executing a signature page or joinder hereto (collectively with the Investors, the Founders and the Founder Trusts, the Holders and each, a Holder).
RECITALS
WHEREAS, the Company, the Founders and Tulco, LLC (Tulco and together with the Company and the Founders, the Prior Parties) are parties to that certain Stockholders Agreement dated as of October 20, 2017 (the Prior Agreement);
WHEREAS, the Prior Agreement may be amended or otherwise modified only by an instrument executed by each of the Holders (as such term is defined in the Prior Agreement);
WHEREAS, the Investors are parties to that certain Secondary Common Stock Purchase Agreement of even date herewith by and among the Company, Tulco and certain of the other Investors (the Secondary Transaction Agreement);
WHEREAS, in order to induce certain Investors to purchase shares of Common Stock pursuant to the Secondary Transaction Agreement, the Prior Agreement must be amended and restated as set forth herein; and
WHEREAS, the undersigned Prior Parties desire to amend and restate the Prior Agreement in accordance with its terms and further desire that this Agreement supersede and replace the Prior Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. |
Definitions. For purposes of this Agreement: |
1.1. |
Affiliate means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including, without limitation, any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or other investment fund now or |
hereafter existing that is controlled by one or more general partners, managing members, or investment advisers of, or shares the same management company or investment adviser with, such Person; provided that the Company and its subsidiaries shall not be deemed an Affiliate of any Holder. |
1.2. |
Bad Actor Disqualification means any of the bad actor disqualifications described in Rule 506(d)(1)(i) through (viii), as modified by Rules 506(d)(2) and (d)(3), under the Securities Act. |
1.3. |
Board means the board of directors of the Company. |
1.4. |
Business Day means any day other than a Saturday or Sunday or a day in which banking institutions in Los Angeles, California and New York, NY are authorized or required by law to close. |
1.5. |
Code means the U.S. Internal Revenue Code of 1986, as amended. |
1.6. |
Common Stock means the Common Stock, par value $0.0001 per share, of the Company. |
1.7. |
Company Sale means a transaction or series of related transactions (whether by merger, consolidation, share transfer, new issuance of Voting Securities or otherwise) in which a Person (together with such Persons Affiliates and Immediate Family Members) acquires, directly or indirectly, (i) a majority of the voting power of the Company (or the surviving or acquiring entity) or (ii) all or substantially all of the assets of the Company and its direct and indirect subsidiaries (on a consolidated basis). |
1.8. |
Competitor of the Company means a competitor of the Company as determined reasonably and in good faith by the Board (with, for the avoidance of doubt, any interested director, if any, abstaining from such Board vote). |
1.9. |
Damages means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law. |
1.10. |
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. |
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1.11. |
Excluded Registration means (i) a registration relating to the sale or grant of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, equity incentive or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) 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 Voting Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered. |
1.12. |
Fiscal Year means the period beginning on the first day of January of each year and ending on the last day of December of each year, or as other otherwise designated by the Board. |
1.13. |
GAAP means generally accepted accounting principles in the United States as in effect from time to time. |
1.14. |
Immediate Family Member means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein. |
1.15. |
Independent Director means a member of the Board who is not otherwise affiliated with the Company, any director, officer, or stockholder of the Company or any or an Affiliate or Immediate Family Member of any of the foregoing. |
1.16. |
Initiating Holders means, collectively, Holders who properly initiate a registration request under this Agreement. |
1.17. |
Liquidity Event shall mean an IPO or a Company Sale. |
1.18. |
Major Investor shall mean each Investor who holds at least 324,953 Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations). |
1.19. |
Material Conflict of Interest means, with respect to a Director regarding any matter requiring a vote of the Board, a conflict of interest arising from (i) such Director or any of his or her Affiliates or Immediate Family Members having a material interest (financial or otherwise) in such matter, other than an interest solely attributable to an equity interest in the Company, or (ii) any legal action involving the Company or any of its subsidiaries, on the one hand, and such Director or any of his or her Affiliates or Immediate Family Members, on the other. For the avoidance of doubt, with respect to a Founder, any matter involving the enforcement of, or the assertion of a material breach under, an employment agreement of such Founder (including all agreements attached as exhibits to such employment agreement) shall be deemed to give rise to a Material Conflict of Interest. |
1.20. |
Necessary Action means, with respect to a specified result, all actions that Person may take within such Persons control, to the fullest extent permitted by applicable law, necessary to cause such result, including, without limitation, (a) causing the adoption of |
3
equityholders resolutions by voting or providing a written consent or proxy with respect to the Voting Securities, (b) causing the adoption of amendments to the Organizational Documents, (c) executing agreements and instruments with respect to the Voting Securities, and (d) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions, in each case, that are required to achieve such result. |
1.21. |
New Securities shall mean any Securities whether now authorized or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, exercisable or convertible into or exchangeable for or settleable in capital stock; provided that the term New Securities does not include Securities issued: (i) pursuant to stock splits, stock dividends, or similar transactions; (ii) that are shares of Common Stock issued to employees, consultants, officers or directors of the Company pursuant to stock option, restricted stock, or restricted stock unit plans or agreements approved by the Board; (iii) to financial institutions or lessors in connection with commercial credit arrangements, equipment financings, commercial property lease transactions, or similar transactions; (iv) pursuant to currently outstanding warrants, notes, or other rights to acquire Securities of the Company; (v) in connection with a Company Sale; (vi) that are shares of Common Stock in a public offering; or (vii) in strategic partnership transactions. |
1.22. |
Option Pool means 5,746,326 shares of Common Stock issued or reserved for issuance pursuant to the Companys 2016 Equity Incentive Plan (the Plan). All share numbers in this paragraph are subject to adjustment for stock splits, stock dividends, combinations and other recapitalizations with respect to such shares. |
1.23. |
Organizational Documents means the Amended and Restated Certificate of Incorporation and Bylaws of the Company, each as amended from time to time. |
1.24. |
Person means any individual, corporation, partnership, fund, trust, limited liability company, association or other entity. |
1.25. |
Right of Co-Sale means the right, but not an obligation, of a Major Investor to participate in a Transfer on the terms and conditions specified in the Purchase Notice. |
1.26. |
SEC means the Securities and Exchange Commission. |
1.27. |
SEC Rule 144 means Rule 144 promulgated by the SEC under the Securities Act. |
1.28. |
SEC Rule 145 means Rule 145 promulgated by the SEC under the Securities Act. |
1.29. |
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. |
1.30. |
Security means any share of Common Stock or other capital stock of the Company, or any other equity interest in or equity unit or equity security of the Company, or any option, warrant or other right to acquire any equity in the Company, or any securities convertible into or exercisable or exchangeable for or settleable in equity in the Company. |
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1.31. |
Selling Expenses means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Voting Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 9.6. |
1.32. |
Special Purpose Entity means an entity that holds or would hold only Securities of the Company or has or would have a class or series of securityholders with beneficial interests primarily in Securities of the Company (including for such purpose an entity that holds cash and/or cash equivalents intended to purchase such Securities). |
1.33. |
Transfer of any Security means any direct or indirect sale, assignment, transfer, conveyance, pledge, hypothecation or other transfer or disposition of such Security or any legal or beneficial interest in such Security, whether or not for value and whether voluntary or involuntary or by operation of law. |
1.34. |
Tulco Permitted Transfer means a Transfer by Tulco or any of its Affiliates (i) to an Affiliate of Tulco, which shall include any entity, parallel fund or alternative investment vehicle managed by Tulco or any of its Affiliates, (ii) pursuant to an in-kind distribution to its partners or members, or (iii) to any officer, manager, director, member or partner of Tulco or its Affiliates; provided that in each case the transferee has executed a joinder agreement in substantially the form attached hereto as Exhibit A, agreeing in writing to be subject to the terms of this Agreement to the same extent as if he, she or it were an original Holder hereunder. |
1.35. |
Undersubscription Notice means written notice from a Major Investor notifying the Company and the selling Holder that such Major Investor intends to exercise its option to purchase all or any portion of the shares of Offered Securities not purchased pursuant to the Right of Purchase. |
1.36. |
Voting Securities means the Common Stock of the Company and any other Securities entitled to voting rights as set forth in the Organizational Documents, including, without limitation, such Securities acquired by conversion, exercise, exchange, or settlement of convertible securities, rights, options, restricted stock units and warrants. Notwithstanding the foregoing, solely for purposes of Section 9 of this Agreement, Voting Securities shall not include any securities (i) sold by a person to the public either pursuant to a registration statement or SEC Rule 144, (ii) sold in a private transaction in which the transferors rights under Section 9 of this Agreement are not assigned or (iii) sold pursuant to Section 9.12 and excluding any shares for which registration rights have terminated pursuant to Section 9.12. |
2. |
Corporate Governance. |
2.1. |
From and after the Effective Date, each Holder shall vote all of his, her or its Common Stock and any other Voting Securities of the Company over which such Holder has voting control and shall take all other Necessary Actions within his, her or its control (in his, her or its capacity as a stockholder including, without limitation, attendance at |
5
meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all Necessary Actions within its control (including, without limitation, calling special board and stockholder meetings), so that the provisions of this Section 2 are given full force and effect. |
2.2. |
Board Composition. The authorized number of members of the Board shall be three (3) members (each, a Director), and the number of Directors shall not be increased or decreased without the approval of (i) the Board, (ii) Tulco, (iii) the Investor Majority and (iv) at least one of the Founders. |
2.3. |
Board Members. |
(a) |
The composition of the Board shall be as follows: |
(i) |
for so long as Heather Hasson remains employed by the Company and desires to serve on the Board, Heather Hasson; |
(ii) |
for so long as Catherine Spear remains employed by the Company and desires to serve on the Board, Catherine Spear; and |
(iii) |
one (1) director designated by Tulco (the Tulco Director), who shall initially be John Martin Willhite. |
(b) |
On the date on which a Founders employment with the Company is terminated by the Company or by such Founder for any reason, such Founder shall resign from the Board and if such Founder fails to do so, each Holder agrees to take all Necessary Actions to remove such Founder from the Board. |
(c) |
At such time that there is any vacancy with respect to a Board seat previously held by a Founder, whether due to such Founder no longer being employed by the Company, such Founders resignation or removal from the Board, or any other reason, and provided that at such time the other Founder continues to serve on the Board (the Remaining Founder Director), then such vacancy shall be filled by a Person unanimously approved by both the Tulco Director and the Remaining Founder Director. |
(d) |
At such time that there is any vacancy with respect to a Board seat previously held by a Founder, whether due to such Founder no longer being employed by the Company, such Founders resignation or removal from the Board, or any other reason, and at such time neither Founder is then serving on the Board, then such vacancy shall be filled by a Person designated by the Tulco Director. |
(e) |
At such time that there is any vacancy with respect to a Board seat held by the Tulco Director, whether due to such Tulco Directors resignation or removal from the Board, or any other reason, then such vacancy shall be filled by a Person designated by Tulco (and such Person shall thereby become the Tulco Director). |
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2.4. |
Tulco Director Approvals. Notwithstanding anything contained in this Agreement to the contrary, until such time as a majority of the members of the Board are designated by Tulco or the Tulco Director, as the case may be, neither the Company nor any direct or indirect subsidiary of the Company, and no director, officer, employee or agent of the Company or any direct or indirect subsidiary of the Company, shall effect any of the following actions on behalf of or for the account of the Company or any direct or indirect subsidiary of the Company, in each case without first obtaining the affirmative approval of the Tulco Director: |
(a) |
any material change to the lines of business conducted by the Company and its subsidiaries; |
(b) |
any approval of the Budget of the Company for any Fiscal Year or any amendment, modification or supplement thereto; |
(c) |
any material deviation from the then-current Budget, including, for the avoidance of doubt, any unbudgeted expenditures in excess of 20% of the aggregate amount of budgeted expenditures in such Budget; |
(d) |
any increase or decrease in the authorized equity capital of the Company or any of its subsidiaries, or any increase or decrease in the number of shares of Common Stock reserved for issuance under any equity incentive plan of the Company; |
(e) |
any issuance, grant, sale or Transfer of any Securities or other equity interests in the Company or any of its subsidiaries, including, without limitation, any award or grant of stock options or restricted stock under the Option Pool; provided, that, the Transfer by another Investor, or by a Founder or Founder Trust, of its or her Securities in accordance with the terms and conditions of this Agreement shall not require the approval of the Tulco Director; |
(f) |
any award, determination or payment by the Company or any of its subsidiaries of any bonus or other discretionary or incentive compensation to a Founder; |
(g) |
any amendment, restatement, replacement, or modification of any employment agreement or restrictive covenant agreement with any Founder, including, without limitation, any modification to any compensation arrangements with any Founder; |
(h) |
any transaction with, or any agreement or any amendment, restatement, replacement, or modification of any agreement with, any Person who is (i) an officer, director, manager or employee of the Company (other than any employment arrangements or standard indemnification agreements with the Company), (ii) a Holder, or any officer, director, manager or employee of any Holder or Affiliate thereof, or (iii) an Affiliate of any of the foregoing; provided, that, a transaction with, or any agreement or any amendment, restatement, replacement, or modification of any agreement with, any other Investor in accordance with the terms and conditions of this Agreement shall not require the approval of the Tulco Director; |
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(i) |
any incurrence of indebtedness for borrowed money by the Company or any of its subsidiaries in excess of $1,000,000, other than trade debt in the ordinary course of business; |
(j) |
any dividend or other distribution (whether in cash, securities or other property) with respect to any Securities or other equity interests in the Company or any of its subsidiaries, or any transaction or series of related transactions involving the purchase, redemption, acquisition, cancellation, surrender or termination (whether for cash, securities or other property) of Securities or other equity interests in the Company or any of its subsidiaries from any Person, or on account of any return of capital to any holder of Securities or other equity interests in the Company or any of its subsidiaries; |
(k) |
any transaction or series of related transactions involving the sale, lease, license, exchange or other disposition (including, without limitation, by merger, consolidation, sale of stock, or sale of assets) by the Company of any assets of the Company or any of its subsidiaries, or any pledge or granting of any lien, security interest, or other encumbrance on any assets of the Company or any of its subsidiaries, in each instance having a value in excess of $5,000,000, other than in the ordinary course of business consistent with past practice; |
(l) |
any transaction or series of related transactions involving the purchase, lease, license, exchange or other acquisition (including, without limitation, by merger, consolidation, sale of stock, or sale of assets) by the Company or any of its subsidiaries of any assets, in each case having a value in excess of $5,000,000, other than in the ordinary course of business consistent with past practice; |
(m) |
the undertaking of a firm commitment underwritten initial public offering under the Securities Act of any Securities or other equity interests in the Company or the direct listing of the Company on a securities exchange (an IPO); |
(n) |
any commencement, termination, compromise or settlement of any material litigation, lawsuit, action, dispute or other proceeding or otherwise assuming any material liability, or agreeing to the provision of any equitable relief, by the Company; |
(o) |
any amendment, modification, repeal or waiver of any provision of the Organizational Documents or the organizational documents of any subsidiaries of the Company; |
(p) |
any Company Sale or other reorganization, merger, share exchange, share transfer, consolidation, business combination or similar transaction; |
(q) |
the liquidation, winding up or dissolution of the Company or filing of any voluntary petition in bankruptcy or insolvency; or |
(r) |
any agreement or commitment to do any of the foregoing. |
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2.5. |
Investor Approvals. |
(a) |
Investor Majority. Notwithstanding anything contained in this Agreement to the contrary, neither the Company nor any direct or indirect subsidiary of the Company, and no director, officer, employee or agent of the Company or any direct or indirect subsidiary of the Company, shall either directly or indirectly (by amendment, merger, consolidation or otherwise) effect any of the following actions on behalf of or for the account of the Company or any direct or indirect subsidiary of the Company, in each case, without first obtaining the written consent of the Investors (other than Tulco and, in the case of Section 2.5(a)(iv), any interested Investor) holding a majority of the issued and outstanding shares of Common Stock then held by all such Investors (the Investor Majority): |
(i) |
(A) authorize, create or issue any equity security (including, without limitation, (1) any other security convertible into or exercisable for any such equity security or (2) any unit of debt and equity securities) having a preference over, the Common Stock with respect to dividends, liquidation or redemption; or (B) reclassify, alter or amend any existing security of the Company if such reclassification, alteration or amendment would render such other security senior to the Common Stock with respect to dividends, liquidation or redemption; |
(ii) |
redeem, repurchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any Securities (other than pursuant to employee or consultant agreements giving the Company the right to repurchase shares upon or following the termination of services pursuant to the terms of the applicable agreement); |
(iii) |
declare or pay any dividend or other distribution (whether in cash, securities or other property) with respect to any Securities or other equity interests in the Company or any of its subsidiaries, or any transaction or series of related transactions involving the purchase, redemption, acquisition, cancellation, surrender or termination (whether for cash, securities or other property) of Securities or other equity interests in the Company or any of its subsidiaries from any Person, or on account of any return of capital to any holder of Securities or other equity interests in the Company or any of its subsidiaries; |
(iv) |
enter into or be a party to any contract or transaction with any director, officer, Affiliate or stockholder of the Company or Affiliate or Immediate Family Member of the foregoing, other than (A) the transactions contemplated by the Secondary Transaction Agreement and this Agreement, (B) any customary indemnification agreement entered into by and between the Company and the director, in such individuals capacity as a member of the Board, (C) any reimbursement of reasonable, out-of-pocket business expenses incurred in the ordinary course of the a directors service on the Board, for which written substantiation and |
9
request for reimbursement is submitted to the Company timely and otherwise in accordance with the Companys then current policies and procedures applicable to members of the Board, (D) any transaction contemplated by the Founders existing agreements with the Company relating to their respective services, whether an employment agreement, bonus letter, or otherwise, or (E) any contract or transaction that is approved by the Board, including at least a majority of the disinterested Independent Directors; provided that, subsection (E) above shall require the approval of the Investor Majority until one Independent Director is appointed to the Board in accordance with the terms and conditions of this Agreement; or |
(v) |
create, adopt, amend, repeal or terminate any equity (or equity-linked) incentive plan or increase the number of shares of Common Stock reserved for issuance under any equity (or equity-linked) incentive plan, (A) other than any annual cash bonus plan that is based on or derived from the value of Common Stock or (B) unless such creation, adoption, amendment, repeal or termination or increase is approved by the Board, including a majority of the disinterested Independent Directors; provided that, subsection (B) above shall require the approval of the Investor Majority until one Independent Director is appointed to the Board in accordance with the terms and conditions of this Agreement. |
2.6. |
Budget. |
(a) |
The annual operating plan and annual budget for the Company through each Fiscal Year, which has previously been approved by the Board, as it may be updated or replaced in accordance with Section 2.4(b), is referred to herein as the Budget. The Companys management shall operate the Company in accordance with the Budget. |
(b) |
No later than sixty (60) days following the beginning of each Fiscal Year, the officers of the Company shall prepare and submit to the Board proposed revisions to the Budget for such Fiscal Year. The Companys management shall continue to operate the Company in accordance with the existing Budget until a revised Budget is approved in accordance with Section 2.4(b); provided that if at the start of a Fiscal Year the revised Budget for such Fiscal Year has not been approved in accordance with Section 2.4(b), and until a revised Budget for such Fiscal Year has been so approved, the Budget for such Fiscal Year shall be deemed to be the existing Budget, with an increase of five percent (5%) to each line item in the existing Budget. |
2.7. |
No Executive Committee. The Board shall not delegate its authority to, and each Holder agrees to take all Necessary Action to prohibit the Board from delegating its authority to or otherwise acting to circumvent the Board process through, an executive committee, subsidiary board or similar body. |
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2.8. |
Conflict with Organizational Documents. In the event of any conflict between the provisions of the Companys Organizational Documents and this Agreement, the terms of this Agreement shall prevail. |
2.9. |
Subsidiary Boards. The board of any direct or indirect subsidiary of the Company shall have the same composition as the Board. |
2.10. |
Director Conflicts of Interests. Each Director (each such director, an Interested Director) who has a Material Conflict of Interest in voting on any particular matter (a Conflicted Matter) before the Board (or any subsidiary board) shall recuse himself or herself prior to the vote of the Board on such Conflicted Matter in any in-person or telephonic meeting of the Board; provided, that, such Interested Director may be counted in determining the presence of a quorum at the meeting of the Board (or subsidiary board) on which such Conflicted Matter is voted on; provided, further, that, for the avoidance of doubt, if the material facts as to the Interested Directors relationship or interest as to such Conflicted Matter are disclosed or are known to the Board, any action of the Board with respect to such Conflicted Matter may be approved by the affirmative votes of a majority of the disinterested directors (or the sole remaining disinterested director, if the case may be), even though the disinterested directors be less than a quorum. |
3. |
Transfers. |
3.1. |
Restrictions on Transfer. Subject to compliance with this Section 3, Section 4 and Section 5, any Founder or Founder Trust may Transfer Securities to any Person, and, subject to this Section 3 and Section 6, any Holder that is not a Founder or Founder Trust may Transfer Securities to any Person on or after the Effective Date; provided that in each case (i) any proposed purchaser, pledgee or transferee has executed a joinder agreement in substantially the form attached hereto as Exhibit A, agreeing in writing to be subject to the terms of this Agreement to the same extent as if he, she or it were an original Holder hereunder, (ii) such transferee is not a Competitor, and (iii) if requested by the Company, such Holder has delivered to the Company a written opinion of counsel in form and substance reasonably satisfactory to the Company to the effect that such Transfer may be effected without registration under the Securities Act. In addition, no Holder shall be entitled to Transfer any Securities at any time if such Transfer would (a) violate the Securities Act, or any state (or other jurisdiction) securities or blue sky laws applicable to the Company or the Securities; (b) cause the Company to be subject to Section 12(g) or 15(d) of the Exchange Act; (c) cause the Company to become subject to the registration requirements of the U.S. Investment Company Act of 1940, as amended; or (d) be a non-exempt prohibited transaction under the Employer Retirement Income Security Act of 1974, as amended (ERISA) or the Code or cause all or any portion of the assets of the Company to constitute plan assets under ERISA or Section 4975 of the Code. Any Transfer or attempted Transfer by such Holder not in compliance with this Agreement shall be null and void, and the Company shall not in any way give effect to such nonpermissible Transfer. |
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3.2. |
Restrictive Legend. Each Securities certificate or Securities evidenced on the books and records of the Companys transfer agent, as applicable, shall bear the following restrictive legend, either as an endorsement or on the face thereof: |
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE ACT) AND MAY NOT BE OFFERED, OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNITL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER 23, 2020, AS AMENDED AND MODIFIED FROM TIME TO TIME. ANY TRANSFEREE OF THESE SECURITIES TAKES SUBJECT TO THE TERMS OF SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE COMPANY.
In the event that one or more of the restrictive legends set forth in this Section 3.2 has ceased to be applicable, the Company shall provide or shall cause its transfer agent to provide any Holder, or its respective transferees, at their request, without any expense to such Persons (other than applicable transfer taxes and similar governmental charges, if any), with, in the case of Securities evidenced by certificates, new certificates for such Securities of like tenor not bearing the legend with respect to which the restriction has ceased and terminated or, in the case of Securities evidenced on the books and records of the transfer agent, with a securities entry that is free of any restrictive notations corresponding to such legend.
4. |
Right of Purchase. A Founder or Founder Trust (a Transferring Holder) shall, prior to consummating any Transfer of Securities for cash or other consideration of value (such shares, the Offered Securities), offer to each Major Investor the right to acquire its Pro Rata Share (as defined below) of the Offered Securities from such Founder or Founder Trust in accordance with the procedures set forth in this Section 4 (such right, the Right of Purchase). Pro Rata Share will mean, as to the applicable Major Investor, a percentage represented by the ratio of (a) the number of Securities owned by such Major Investor immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities) to (b) the total number of Securities held by all Major Investors immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities). |
4.1. |
Such Transferring Holder shall give the Company and each Major Investor written notice of all of the material terms of the proposed transaction (the Purchase Notice) and shall provide each Major Investor with an opportunity to purchase its Pro Rata Share of the Offered Securities at the same price and on the same terms as set forth in the Purchase Notice;provided, however, that such Major Investor shall not be required to comply with any such terms (other than price) that would not be reasonably possible for such Major Investor to satisfy. |
12
4.2. |
Each Major Investor shall deliver to such Transferring Holder and the Company a response notice within ten (10) Business Days of the date on which the Purchase Notice is given (the Purchase Response Notice Period) indicating whether such Major Investor desires to purchase its Pro Rata Share of the Offered Securities at such price and on such terms (other than any terms inapplicable to such Major Investor pursuant to the proviso in Section 4.1) (the Purchase Response Notice). |
4.3. |
If a Major Investor delivers the Purchase Response Notice within the Purchase Response Notice Period and indicates in such Purchase Response Notice its desire to purchase its Pro Rata Share of the Offered Securities from such Transferring Holder at the price and on the terms set forth in the Purchase Notice (other than any terms inapplicable to such Major Investor pursuant to the proviso in Section 4.1), then such Transferring Holder shall Transfer to such Major Investor, and such Major Investor shall purchase from such Holder, that number of the Offered Securities representing such Major Investors Pro Rata Share of the Offered Securities, at such price and on such applicable terms set forth in the Purchase Notice (other than any terms inapplicable to such Major Investor pursuant to the proviso in Section 4.1), and such Transfer shall take place within sixty (60) days after the date on which the Transferring Holder gave the Purchase Response Notice. |
4.4. |
If the Right of Purchase has been exercised by some but not all of the Major Investors pursuant to this Section 4 by the end of the Purchase Response Notice Period, then the Company and the Transferring Holder shall, within five days after the expiration of the Purchase Response Notice Period, send written notice (the Company Undersubscription Notice) to those Major Investors who exercised their Right of Purchase within the Purchase Response Notice Period (the Exercising Investors). Each Exercising Investor shall, subject to the provisions of this Section 4.4, have an additional option to purchase all or any part of the balance of any such remaining unsubscribed shares of Offered Securities proposed to be Transferred on the terms and conditions set forth in the Purchase Notice (other than any terms inapplicable to such Major Investor pursuant to the proviso in Section 4.1). To exercise such option, an Exercising Investor must deliver an Undersubscription Notice to the Transferring Holder and the Company within 10 days after the expiration of the Purchase Response Notice Period. In the event there are two or more such Exercising Investors that choose to exercise the last-mentioned option for a total number of remaining shares in excess of the number available, the remaining Securities available for purchase under this Section 4.4 shall be allocated to such Exercising Investors pro rata based on the number of shares of Offered Securities such Exercising Investors have elected to purchase (without giving effect to any shares of Offered Securities that any such Exercising Investor has elected to purchase pursuant to the Company Undersubscription Notice). If the options to purchase the remaining shares are exercised in full by the Exercising Investors, the Company and the Transferring Holder shall immediately notify all of the Exercising Investors of that fact. The Transferring Holder shall Transfer to each Exercising Investor, and such Exercising Investor shall purchase from the Transferring Holder, that number of the Offered Securities representing the portion of the undersubscribed Offered Securities |
13
allocated to such Exercising Investor under this Section 4.4, at such price and on such applicable terms set forth in the Purchase Notice (other than any terms inapplicable to such Major Investor pursuant to the proviso in Section 4.1), and such Transfer shall take place within sixty (60) days after the date on which the Transferring Holder gave the Purchase Response Notice. |
4.5. |
If the consideration proposed to be paid for the Offered Securities in the Purchase Notice is in property, services or other non-cash consideration, the fair market value of the consideration shall be as determined in good faith by the disinterested members of the Board and as set forth in the Purchase Notice. If any Investor cannot for any reason pay for the Offered Securities in the same form of non-cash consideration, such Investor may pay the cash value equivalent thereof, as determined in good faith by the disinterested members of the Board. |
4.6. |
If any Offered Securities are not purchased by a Major Investor pursuant to a Purchase Response Notice or a Major Investor (i) rejects the opportunity to purchase its Pro Rata Share of the Offered Securities, (ii) fails to exercise the overallotment option for the price and upon the terms specified in the Company Undersubscription Notice or (iii) fails to deliver the Purchase Response Notice within the Purchase Response Notice Period, then, for a period of ninety (90) days following the expiration of the Purchase Response Notice Period, as the case may be, the Transferring Holder shall be permitted to consummate the proposed Transfer of such Offered Securities that the Major Investors have elected not to purchase on the terms set forth in the Purchase Notice or on other terms that are not more favorable to the Transferring Holder in any material respect than those set forth in such Purchase Notice, subject to the other restrictions on Transfer contained in this Agreement (including, without limitation, Section 3 and Section 5) or otherwise applicable at such time with respect to such Offered Securities; provided that if any such Transfer is not consummated within such ninety (90)-day period, such Transfer shall again become subject to the Major Investors Right of Purchase. |
4.7. |
Notwithstanding anything in this Section 4 to the contrary, the provisions of this Section 4 shall not apply to any Transfer in which a Founder or Founder Trust exercises her or its respective Tag-Along Right under Section 6. Any Transfer that is not made in accordance with the terms and conditions of this Section 4 shall be null and void ab initio. |
5. |
Co-Sale Rights. |
5.1. |
If any Offered Securities are not purchased pursuant to Section 4.1 above and thereafter are to be Transferred for cash or other consideration of value to a prospective transferee, each Major Investor may elect to exercise its Right of Co-Sale and participate on a pro rata basis in the Transfer as set forth in Section 5.2 below and, subject to Section 5.4, otherwise on the same terms and conditions specified in the Purchase Notice. Each Major Investor who desires to exercise its Right of Co-Sale (each, a Participating Investor) must give the Transferring Holder written notice to that effect within 15 days after the last day of the Purchase Response Notice Period, and upon giving such notice such Participating Investor shall be deemed to have effectively exercised the Right of Co-Sale. |
14
5.2. |
Each Participating Investor may include in the Transfer all or any part of such Participating Investors shares of Common Stock equal to the product obtained by multiplying (i) the aggregate number of Securities such Transferring Holder proposes to Transfer (excluding Common Stock purchased by the Major Investors pursuant to the Right of Purchase) by (ii) a fraction, the numerator of which is the number of Securities owned by such Participating Investor immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities) and the denominator of which is the total number of Securities then issued and outstanding immediately prior to such transfer (assuming full conversion, exercise or settlement of all outstanding Securities). To the extent one or more of the Participating Investors exercise such right of participation in accordance with the terms and conditions set forth herein, the number of shares proposed to be Transferred that the Transferring Holder may sell in the Transfer shall be correspondingly reduced. |
5.3. |
The Participating Investors and the Transferring Holder agree that the terms and conditions of any Transfer in accordance with this Section 5 will be memorialized in, and governed by, a written purchase and sale agreement with the prospective transferee (the Purchase and Sale Agreement) with customary terms and provisions for such a transaction, and the Participating Investors and the Transferring Holder further covenant and agree to enter into such Purchase and Sale Agreement as a condition precedent to any sale or other transfer in accordance with this Section 5. |
5.4. |
Subject to Section 5.5, the aggregate consideration payable to the Participating Investors and the Transferring Holder shall be allocated based on the number of shares sold to the prospective transferee by each Participating Investor and the Transferring Holder as provided in Section 5.2. |
5.5. |
Notwithstanding Section 5.3, if any prospective transferee or transferees refuse(s) to purchase securities subject to the Right of Co-Sale from any Participating Investor or Investors or upon the failure to negotiate in good faith a Purchase and Sale Agreement reasonably satisfactory to the Participating Investors, no Transferring Holder may sell any Securities to such prospective transferee or transferees unless and until, simultaneously with such sale, such Holder purchases all securities subject to the Right of Co-Sale from such Participating Investor or Investors on the same terms and conditions (including the proposed purchase price) as set forth in the Purchase Notice and as provided in Section 5.4. In connection with such purchase by the Transferring Holder, such Participating Investor or Investors shall deliver to the Transferring Holder any stock certificate or certificates, properly endorsed for transfer, representing the shares of Securities being purchased by the Transferring Holder (or request that the Company effect such transfer in the name of the Transferring Holder). Any such shares transferred to the Transferring Holder will be transferred to the prospective transferee against payment therefor in consummation of the sale of the shares proposed to be Transferred pursuant to the terms and conditions specified in the Purchase Notice, and the Transferring Holder shall concurrently therewith remit or direct payment to each such Participating Investor the portion of the aggregate consideration to which each such Participating Investor is entitled by reason of its participation in such sale as provided in this Section 5.5. Any Transfer that is not made in accordance with the terms and conditions of this Section 5 shall be null and void ab initio. |
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6. |
Tag-Along Rights. |
6.1. |
Subject to Section 6.11, if any Investor or Investors propose to Transfer, directly or indirectly, any Securities to any Person (together with such Persons Affiliates and Immediate Family Members) and such proposed Transfer would constitute a Company Sale (a Triggering Transfer), such Investor or Investors (collectively, a Triggering Transfer Holder) shall give written notice (a Tag-Along Notice) of such proposed Transfer (a Tag-Along Sale) to each Holder at least fifteen (15) Business Days prior to the consummation of such proposed Transfer, setting forth (i) the number of Securities proposed to be Transferred, (ii) the consideration to be received for such Securities by such Investor or Investors, (iii) the identity of the prospective transferee, (iv) any other material terms and conditions of the proposed Transfer, and (v) the date of the proposed Transfer (the Material Tag Terms). |
6.2. |
Upon delivery of a Tag-Along Notice, each Holder may elect to sell up to its Pro Rata Portion (as defined below) of its Securities, at the same price per Security and pursuant to the same terms and conditions with respect to payment for the Common Stock as agreed to by the Triggering Transfer Holder in the Tag-Along Sale (a Tag-Along Right, and such electing Holder, a Tag-Along Holder), by sending written notice to the Triggering Transfer Holder (the Tag-Along Response Notice) within seven (7) Business Days after delivery of the Tag-Along Notice (the Tag-Along Notice Period), indicating its election to sell up to its Pro Rata Portion of its Securities in such Tag-Along Sale. For purposes of this Section 6, Pro Rata Portion shall mean, with respect to shares held by a Tag-Along Holder, a number equal to the product of (i) the total number of Securities proposed to be Transferred to a transferee as set forth in the Tag-Along Notice and (ii) a fraction, the numerator of which is the total number of Securities owned by such Tag-Along Holder immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities) and the denominator of which is the total number of Securities held by all Holders immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities). |
6.3. |
Each Tag-Along Holder shall effect its Tag-Along Right by delivering to the Triggering Transfer Holder, not later than seven (7) Business Days after such Tag-Along Holders delivery of the Tag-Along Response Notice, such instruments of transfer as shall be reasonably requested by the Triggering Transfer Holder or the prospective transferee, including, as applicable, one or more stock certificates, properly endorsed for Transfer to the transferee, representing the number of Securities that such Tag-Along Holder has elected to include in the Transfer, together with a limited power-of-attorney authorizing the Triggering Transfer Holder to Transfer such Securities on the terms set forth in the Tag-Along Notice. Each Tag-Along Holder shall, if requested by the Triggering Transfer Holder, execute the applicable purchase agreement, if any, and shall make or provide the same representations, warranties, covenants and indemnities as the Triggering Transfer Holder makes or provides in connection with the Tag-Along Sale; provided that each Tag-Along Holder in its capacity as a Holder of Securities shall only be obligated to |
16
make representations and warranties that relate specifically to such Tag-Along Holder with respect to the Tag-Along Holders title to and ownership of the applicable Securities, authorization, execution, and delivery of relevant documents, enforceability of such documents against the Tag-Along Holder, and other similar representations and warranties made by the Triggering Transfer Holder, and shall not be obligated to make any of the foregoing representations and warranties with respect to any other Holder or its Securities. |
6.4. |
If the Tag-Along Sale is not consummated within one hundred twenty (120) days after delivery of the Tag-Along Notice, (i) the Triggering Transfer Holder shall return to each Tag-Along Holder the limited power-of-attorney and all certificates representing the Securities that such Tag-Along Holder delivered for Transfer pursuant to Section 6.3 and any other documents in the possession of the Triggering Transfer Holder executed by such Tag-Along Holder in connection with the proposed Tag-Along Sale, and (ii) all the restrictions on Transfer contained in this Section 6 or otherwise applicable at such time with respect to such Securities shall continue to be in effect. |
6.5. |
If, at the termination of the Tag-Along Notice Period, any Holder shall not have elected to participate in the Tag-Along Sale, such non-participating Holder shall be deemed to have waived its rights under this Section 6 with respect to, and only with respect to, the transfer of its Securities pursuant to such Tag-Along Sale. |
6.6. |
If (i) any Holder declines or fails to exercise its Tag-Along Rights or (ii) any Holder elects to exercise its Tag-Along Rights with respect to less than its Pro Rata Portion of the Securities in such Tag-Along Sale (in each case, such amount of shares elected not to be Transferred, the Excess Portion), the Triggering Transfer Holder shall notify the Tag-Along Holders who have elected to sell their full Pro Rata Portion (each, a Fully Participating Tag-Along Holder) and the Triggering Transfer Holder and any Fully Participating Tag-Along Holder shall be entitled to Transfer, in connection with the Tag- Along Sale, in addition to any Securities already being Transferred, a number of Securities held by it equal to the product of (i) the Excess Portion and (ii) a fraction, the numerator of which is the aggregate amount of Securities held by the Triggering Transfer Holder or the Fully Participating Tag-Along Holder, as the case may be, immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities) and the denominator of which is the total number of Securities held by the Triggering Transfer Holder and all Fully Participating Tag-Along Holders immediately prior to any such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities). If, after following the procedures set forth in this Section 6.6, any Excess Portion remains, the Triggering Transfer Holder shall be entitled to Transfer, in addition to any Securities already being Transferred, a number of shares up to the full amount of any such remaining Excess Portion. |
6.7. |
If the prospective transferee is unwilling or unable to acquire all Securities proposed to be included in the Tag-Along Sale upon the terms and conditions initially proposed by such prospective transferee and set forth in the Tag-Along Notice, then the Triggering Transfer Holder may elect to either cancel such proposed Tag-Along Sale or to allocate to the Triggering Transfer Holder and each Tag-Along Holder delivering a timely Tag-Along |
17
Response Notice an amount of Securities equal to the product of (i) the maximum number of shares of Securities that such prospective transferee is willing to acquire and (ii) a fraction, the numerator of which is the aggregate amount of Securities held by the Triggering Transfer Holder or such Tag-Along Holder, as the case may be, immediately prior to such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities) and the denominator of which is the aggregate amount of Securities held by the Triggering Transfer Holder and all Tag-Along Holders who delivered timely Tag- Along Response Notices immediately prior to such Transfer (assuming full conversion, exercise or settlement of all outstanding Securities). |
6.8. |
All reasonable costs and expenses incurred by the Triggering Transfer Holder in connection with any Tag-Along Sale, including, without limitation, transfer taxes and legal, accounting and investment banking fees, for the benefit of all Holders participating in such Tag-Along Sale (it being understood that costs and expenses incurred by or on behalf of the Triggering Transfer Holder for its sole benefit will not be considered to be for the benefit of all Holders participating in such Tag-Along Sale), shall be borne by such Holder participating in such Tag-Along Sale on a pro rata basis in accordance with the number of shares being sold by each of the Triggering Transfer Holder and the Tag- Along Holders (solely to the extent that such costs and expenses incurred by the Triggering Transfer Holder can be reasonably allocated to the Tag-Along Holders on such basis). For the avoidance of doubt, costs and expenses incurred by any Holder on its own behalf in connection with a Tag-Along Sale shall not be considered costs of the Tag- Along Sale hereunder, and such costs and expenses shall be borne solely by such Holder. |
6.9. |
Any delivery of a Tag-Along Response Notice by a Tag-Along Holder shall be a final and binding commitment of such Tag-Along Holder to participate in such Tag-Along Sale; provided, however, that in the event there is a material adverse change in the terms and conditions of the Tag-Along Sale, the Triggering Transfer Holder shall give written notice of such change to each Tag-Along Holder, and each Tag-Along Holder shall thereafter have the right to revoke its election to participate in the Tag-Along Sale by providing written notice to the Triggering Transfer Holder within (i) five (5) Business Days of receiving the notice of such change or (ii) such lesser period following receipt of notice of such change that remains until the scheduled date of closing for such Tag-Along Sale (but in no event less than three (3) Business Days). |
6.10. |
Notwithstanding anything contained in this Section 6 to the contrary, there shall be no liability on the part of the Triggering Transfer Holder to any Tag-Along Holders if the Tag-Along Sale is not consummated for any reason, and the Triggering Transfer Holder shall not be obligated to consummate the proposed Tag-Along Sale, regardless of whether the Triggering Transfer Holder has delivered a Tag-Along Notice in respect of such proposed Tag-Along Sale. |
6.11. |
For the avoidance of doubt, (i) the provisions of this Section 6 shall not apply to any Tulco Permitted Transfer and (ii) a Transfer by a member of Tulco of any of his, her or its equity interests in Tulco shall not constitute a Triggering Transfer. Notwithstanding the foregoing, neither Tulco nor any other Triggering Transfer Holder shall Transfer any Securities of the Company at any time to any Special Purpose Entity unless such Transfer |
18
to such Special Purpose Entity has been approved by the Board and the Investor Majority. Any Transfer that is not made in accordance with the terms and conditions of this Section 6 shall be null and void ab initio. |
7. |
Drag-Along Rights. |
7.1. |
If (i) the Board and (ii) the Holders holding a majority of the shares of Common Stock then issued and outstanding (assuming full conversion, exercise or settlement of all outstanding convertible securities, rights, options, restricted stock units and warrants) then held by all Holders approve a Company Sale (such Holders, the Electing Holders and such Company Sale, a Drag-Along Transfer), the Electing Holders may exercise drag-along rights in accordance with and subject to the terms, conditions and procedures set forth in this Section 7 (Drag-Along Rights). |
7.2. |
The Electing Holders shall give written notice (a Drag-Along Notice) at least fifteen (15) days prior to the consummation of such proposed Drag-Along Transfer to each other Holder (each, a Drag-Along Holder) of any election by the Electing Holders to exercise its drag-along rights under this Section 7, setting forth (i) the number of Securities proposed to be Transferred, (ii) the consideration to be received for such Securities by such Electing Holders, (iii) the identity of the prospective transferee, (iv) any other material terms and conditions of the proposed Transfer, and (v) the date of the proposed Transfer. Such notice shall also specify the aggregate number of shares of Common Stock such Drag-Along Holder shall be required to Transfer, which shall be an amount determined by the Board equal to the product of (x) the total number of Securities held by such Drag-Along Holder and (y) a fraction, the numerator of which is the total number of Securities proposed to be Transferred by the Electing Holders and their Affiliates, and the denominator of which is the total number of Securities held by the Electing Holders and their Affiliates immediately prior to the Transfer. Any Transfer of Securities by such Drag-Along Holder pursuant to the terms hereof shall be for the same amount and form of consideration per Security as the Electing Holders and their Affiliates will receive in such Drag-Along Transfer, as specified in the Drag-Along Notice. |
7.3. |
Within seven (7) days of delivery of the Drag-Along Notice to a Drag-Along Holder, such Drag-Along Holder shall deliver to the Company such instruments of transfer as shall be reasonably requested by the Electing Holders or the prospective transferee, including, as applicable, one or more stock certificates, properly endorsed for Transfer to the transferee, representing the number of Securities that such Drag-Along Holder will include in the Transfer, together with a limited power-of-attorney authorizing the Company to Transfer such Securities on the terms set forth in the Drag-Along Notice. |
7.4. |
In the event that any Transfer pursuant to this Section 7 is structured as a merger, consolidation or business combination, or any sale of all or substantially all assets, each Drag-Along Holder must further agree to (i) vote or provide a written consent in favor of the transaction, (ii) take such other action within its power, at no cost to it (other than fees and expenses payable to its advisors (which shall be paid by such Drag-Along Holder), as may be required to effect such transaction, and (iii) take all action to waive any dissenters, appraisal or other similar rights with respect thereto. |
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7.5. |
Solely for purposes of Section 7.4 and in order to secure the performance of such Drag-Along Holders obligations under Section 7.4, each Drag-Along Holder hereby irrevocably appoints the Chief Executive Officer of the Company as its attorney-in-fact and proxy of such Drag-Along Holder (with full power of substitution) to vote, provide a written consent or take any other action with respect to its Securities as described in this paragraph if, and only in the event that, such Drag-Along Holder fails to vote or provide a written consent with respect to its Securities in accordance with the terms of Section 7.4(i) or fails to take any other action in accordance with the terms of Section 7.4(ii) or Section 7.4(iii) within three (3) days of a request for such vote, written consent or action. Upon such failure, the Chief Executive Officer of the Company shall have and is hereby irrevocably granted a proxy to vote or provide a written consent with respect to such Drag-Along Holders Securities for the purposes of taking the actions required by Section 7.4. Each Drag-Along Holder intends this proxy to be, and it shall be, irrevocable and coupled with an interest, and such Drag-Along Holder shall take such further action and execute such other instruments as may be necessary to effectuate the intent of this proxy. |
7.6. |
If a Drag-Along Holder fails to Transfer to the drag-along transferee the Securities to be Transferred pursuant to this Section 7 as required to do so hereunder, the Electing Holders may, at their option, in addition to all other remedies it may have, deposit the purchase price (including, without limitation, any promissory note from the underlying transaction constituting all or any portion thereof) for such Securities with any national bank or trust company (the Escrow Agent), and thereupon all of such Drag-Along Holders rights in and to such Securities shall terminate (except for the right to receive the purchase price to which such Drag-Along Holder is entitled under this Section 7). Thereafter, upon delivery to the Company by such Drag-Along Holder of appropriate documentation evidencing the Transfer of such Securities to the drag-along transferee, the Electing Holders shall instruct the Escrow Agent to deliver the purchase price (without any interest from the date of the closing to the date of such delivery, any such interest to accrue to the Company) to such Drag-Along Holder, less any holdback or escrow of such purchase price made on a pro rata basis to any holdback or escrow agreed by the Electing Holders with respect to the consideration received by the Electing Holders and their Affiliates for their Securities, with any such withheld amount being released to the Drag-Along Holder on a pro rata basis with any release of such amounts to the Electing Holders and their Affiliates for their Securities. |
7.7. |
If the Drag-Along Transfer is not consummated with in one hundred eighty (180) days after delivery of the Drag-Along Notice, the Electing Holders shall return to each Drag- Along Holder the limited power-of-attorney and all certificates representing the Securities that such Tag Along Holder delivered for Transfer pursuant to Section 7.3 and any other documents in the possession of the Electing Holders executed by such Drag- Along Holder in connection with the proposed Drag-Along Transfer. |
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7.8. |
Notwithstanding the foregoing, a Drag-Along Holder will not be required to comply with this Section 7 in connection with any proposed Drag-Along Transfer, unless: |
(a) |
any representations and warranties to be made by such Drag-Along Holder in connection with the Drag-Along Transfer are limited to representations and warranties related to authority, ownership and the ability to convey title to such Securities, including, but not limited to, representations and warranties that (i) the Drag-Along Holder holds all right, title and interest in and to the Securities such Drag-Along Holder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Drag-Along Holder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Drag-Along Holder have been duly executed by the Drag-Along Holder and delivered to the acquirer and are enforceable against the Drag-Along Holder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into by the Drag-Along Holder in connection with the transaction, nor the performance of the Drag-Along Holders obligations thereunder, will cause a breach or violation of the terms of any agreement to which the Drag-Along Holder is a party, or any law or judgment, order or decree of any court or governmental agency that applies to such Drag-Along Holder; |
(b) |
the Drag-Along Holder is not required to agree (unless such Drag-Along Holder is a Company officer or employee) to any restrictive covenant in connection with the Drag-Along Transfer (including, without limitation, any covenant not to compete or covenant not to solicit customers, employees or suppliers of any party to the Drag-Along Transfer) or any release of claims other than a release in customary form of claims arising solely in such Drag-Along Holders capacity as a stockholder of the Company; |
(c) |
the Drag-Along Holder and its Affiliates are not required to amend, extend or terminate any contractual or other relationship with the Company, the acquirer or their respective Affiliates, except that the Drag-Along Holder may be required to agree to terminate this Agreement; |
(d) |
the Drag-Along Holder shall not be liable for the breach of any representation or warranty or covenant made by any other Person in connection with the Drag-Along Transfer, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders); |
(e) |
the liability for indemnification, if any, of such Drag-Along Holder in the Drag-Along Transfer and for the breach of any representations and warranties made by the Company, Tulco or Drag-Along Holders in connection with such Drag-Along Transfer, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and |
21
covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders), and subject to any provisions of the Companys Organizational Documents, as amended, related to the allocation of the escrow, is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Drag-Along Holder in connection with such Drag-Along Transfer; |
(f) |
liability shall be limited to such Drag-Along Holders applicable share (determined based on the respective proceeds payable to each Drag-Along Holder in connection with such Drag-Along Transfer in accordance with any applicable provisions of the Companys Organizational Documents) of a negotiated aggregate indemnification amount that applies equally to all Drag-Along Holders but that in no event exceeds the amount of consideration otherwise payable to such Drag-Along Holder in connection with such Drag-Along Transfer, except with respect to claims related to fraud by such Drag-Along Holder, the liability for which need not be limited as to such Drag-Along Holder; |
(g) |
upon the consummation of the Drag-Along Transfer, each Drag-Along Holder will receive the same amount and form of consideration per Security for her Securities as is received by the Electing Holders in respect of their respective Securities; and |
(h) |
subject to clause (g) above, requiring the same amount and form of consideration per Security to be available to the Electing Holders and the Drag-Along Holders, if the Electing Holders are given an option as to the form and amount of consideration per Security to be received as a result of the Drag-Along Transfer, each Drag-Along Holder will be given the same option; provided, however, that nothing in this clause (h) shall entitle any Drag-Along Holder to receive any form of consideration per Security that such Drag-Along Holder would be ineligible to receive as a result of such Drag-Along Holders failure to satisfy any condition, requirement or limitation that is generally applicable to the Holders. |
7.9. |
All costs and expenses incurred by a Holder in connection with any Drag-Along Transfer, including, without limitation, transfer taxes and legal, accounting and investment banking fees, shall be borne by such Holder participating in such Drag-Along Transfer. |
7.10. |
Notwithstanding anything contained in this Section 7 to the contrary, there shall be no liability on the part of the Electing Holders to any Drag-Along Holders if a Drag-Along Transfer is not consummated for any reason, and the Electing Holders shall not be obligated to consummate the proposed Drag-Along Transfer, regardless of whether the Electing Holders have delivered a Drag-Along Notice in respect of such proposed Drag-Along Transfer. |
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8. |
Right of First Offer. |
8.1. |
Subject to the terms and conditions specified in this Section 8, the Company hereby grants to each Major Investor the right of first offer to purchase its pro rata share of New Securities which the Company may, from time to time, propose to sell and issue after the date of this Agreement. Each Major Investors pro rata share, for purposes of this right of first offer, is equal to the ratio of (a) the number of shares of Common Stock owned by such Major Investor immediately prior to the issuance of New Securities (assuming full conversion, exercise or settlement of all outstanding convertible securities, rights, options, restricted stock units and warrants) to (b) the total number of shares of Common Stock of the Company then outstanding immediately prior to the issuance of New Securities (assuming full conversion, exercise or settlement of all outstanding convertible securities, rights, options, restricted stock units and warrants). Each Major Investor shall have a right of over-allotment such that if any Major Investor fails to exercise its right hereunder to purchase its pro rata share of New Securities, each fully exercising Major Investor may purchase the non-purchasing Major Investors portion on a pro rata basis. Each Major Investor may designate as purchaser under this Section 8 itself or any of its Affiliates, in such proportions as it deems appropriate in its sole discretion. |
8.2. |
Each time the Company proposes to issue, offer or sell any Securities or other equity interests, or securities convertible into or exercisable for any Securities or other equity interests, the Company shall first make an offering of such Securities or other equity interests to each Major Investor in accordance with the following provisions: |
(a) |
The Company shall deliver a written notice (the ROFO Notice) to each Major Investor stating (i) its bona fide intention to issue, offer or sell such Securities, (ii) the number of such Securities to be issued, offered or sold, and (iii) the price and terms, if any, upon which it proposes to issue, offer or sell such Securities. |
(b) |
Within fifteen (15) days after delivery of the ROFO Notice, each Major Investor may, by written notice to the Company (an ROFO Election Notice), elect to purchase such Major Investors pro rata share of such New Securities and to indicate whether such Holder desires to exercise its overallotment option for the price and upon the terms specified in the ROFO Notice by delivering a ROFO Election Notice stating therein the quantity of New Securities to be purchased. |
(c) |
If such Major Investor elects to purchase or obtain such Major Investors pro rata share of such New Securities and its overallotment option, then within thirty (30) days after delivery of the ROFO Election Notice, such Major Investor or its designated Affiliate shall deliver to the Company the purchase price for such Securities and the Company shall deliver to such Major Investor or its designated Affiliate one or more stock certificates representing the purchased New Securities. |
(d) |
The right of first offer granted under this Agreement shall expire upon, and shall not be applicable to, a Liquidity Event. |
(e) |
No Major Investor will have a right of first refusal to purchase a pro rata share of New Securities in accordance with this Section 8 if, and for so long as, a Major |
23
Investor, any of its directors, executive officers, other officers that may serve as a director or officer of any company in which it invests, general partners or managing members or any person that would be deemed a beneficial owner of the securities of the Company held by the Holder (in accordance with Rule 506(d) of the Securities Act) is subject to any Bad Actor Disqualification, except as set forth in Rule 506(d)(2)(ii) or (iii) or (d)(3) under the Securities Act. |
8.3. |
Notwithstanding any provision hereof to the contrary, in lieu of complying with the provisions of this Section 8.3, the Company may elect to give notice to the Major Investors within 30 days after the issuance of New Securities. Such notice shall describe the type, price, and terms of the New Securities. Each Major Investor shall have 20 days from the date notice is given to elect to purchase up to the number of New Securities that would, if purchased by such Major Investor, maintain such Major Investors percentage-ownership position, calculated as set forth in Section 8.1 before giving effect to the issuance of such New Securities. |
8.4. |
This Section 8 shall not apply to (i) the exercise or settlement of options or restricted stock units held by the Founders, (ii) the grant, exercise or settlement of options to purchase Securities, restricted stock or restricted stock units, or any other equity or equity-linked incentive awarded or granted pursuant to the Option Pool, (iii) any stock split, stock dividend or recapitalization by the Company or (iv) the issuance of any securities that are debt securities (other than debt securities convertible into Securities). |
9. |
Registration Rights. The Company covenants and agrees as follows: |
9.1. |
Demand Registration. |
(a) |
If at any time after 180 days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least 35% of the Voting Securities then outstanding that the Company file a Form S-1 registration statement with an anticipated aggregate offering price, net of Selling Expenses, of at least $25 million, then the Company shall (x) within 10 days after the date such request is given, give notice thereof (the Demand Notice) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within 60 days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Voting Securities that the Initiating Holders requested to be registered and any additional Voting Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within 20 days of the date the Demand Notice is given, and in each case, subject to the limitations of Sections 9.1(c) and 9.3. |
(b) |
If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders that the Company file a Form S-3 registration statement with respect to outstanding Voting Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $10 million, then the Company shall (i) within 10 days after the date |
24
such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within 45 days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Voting Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within 20 days of the date the Demand Notice is given, and in each case, subject to the limitations of Sections 9.1(c) and 9.3. |
(c) |
Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 9.1 a certificate signed by the Companys chief executive officer stating that in the good faith judgment of the Board it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because it would be materially detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore necessary to defer the filing of such registration statement, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than 90 days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than twice in any 12-month period. |
(d) |
The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 9.1(a) (i) during the period that is 60 days before the Companys good faith estimate of the date of filing of, and ending on a date that is 180 days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected one registration pursuant to Section 9.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Voting Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 9.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 9.1(b) (i) during the period that is 30 days before the Companys good faith estimate of the date of filing of, and ending on a date that is 90 days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 9.1(b) within the 12 month period immediately preceding the date of such request. A registration shall not be counted as effected for purposes of this Section 9.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 9.6, in which case such withdrawn registration statement shall be counted as effected for |
25
purposes of this Section 9.1(d); provided, that if such withdrawal is during a period the Company has deferred taking action pursuant to Section 9.1(c), then the Initiating Holders may withdraw their request for registration and such registration will not be counted as effected for purposes of this Section 9.1(d). |
9.2. |
Company Registration. If the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 9.3, cause to be registered all of the Voting Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 9.2 before the effective date of such registration, whether or not any Holder has elected to include Voting Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 9.6. |
9.3. |
Underwriting Requirements. |
(a) |
If, pursuant to Section 9.1, the Initiating Holders intend to distribute the Voting Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 9.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holders Voting Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Voting Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 9.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting provided, however, that no Holder (or any of their assignees) shall be required to make any representations, warranties or indemnities except as they relate to such Holders ownership of shares and authority to enter into the underwriting agreement and to such Holders intended method of distribution, and the liability of such Holder shall be several and not joint, and limited to an amount equal to the net proceeds from the offering received by such Holder. Notwithstanding any other provision of this Section 9.3, if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Voting Securities that otherwise would be underwritten pursuant hereto, and the number of Voting Securities that may be included in the underwriting shall be allocated among such Holders of Voting Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Voting Securities owned by each Holder |
26
or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Voting Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. |
(b) |
In connection with any offering involving an underwriting of shares of the Companys capital stock pursuant to Section 9.2, the Company shall not be required to include any of the Holders Voting Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Voting Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Voting Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Voting Securities requested to be registered can be included in such offering, then the Voting Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Voting Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in no event shall (i) the number of Voting Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Voting Securities included in the offering be reduced below 30% of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholders securities are included in such offering. For purposes of the provision in this Section 9.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single selling Holder, and any pro rata reduction with respect to such selling Holder shall be based upon the aggregate number of Voting Securities owned by all Persons included in such selling Holder, as defined in this sentence. |
27
(c) |
For purposes of Section 9.1, a registration shall not be counted as effected if, as a result of an exercise of the underwriters cutback provisions in Section 9.3(a), fewer than 50% of the total number of Voting Securities that Holders have requested to be included in such registration statement are actually included. |
9.4. |
Obligations of the Company. Whenever required under this Section 9 to effect the registration of any Voting Securities, the Company shall, as expeditiously as reasonably possible: |
(a) |
prepare and file with the SEC a registration statement with respect to such Voting Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Voting Securities registered thereunder, keep such registration statement effective for a period of up to 120 days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such 120 day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Voting Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 120 day period shall be extended for up to 90 days, if necessary, to keep the registration statement effective until all such Voting Securities are sold; |
(b) |
prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement; |
(c) |
furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Voting Securities; |
(d) |
use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; |
(e) |
in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering; |
28
(f) |
use its commercially reasonable efforts to cause all such Voting Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed; |
(g) |
provide a transfer agent and registrar for all Voting Securities registered pursuant to this Agreement and provide a CUSIP number for all such Voting Securities, in each case not later than the effective date of such registration; |
(h) |
promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith; |
(i) |
notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and |
(j) |
after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus. |
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Companys directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
9.5. |
Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 9 with respect to the Voting Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Voting Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holders Voting Securities. |
9.6. |
Expense of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 9 and all expenses incurred by the Company in connection with a direct listing, including all registration, filing, and qualification fees; printers and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, |
29
not to exceed $50,000, of one counsel for the selling Holders selected by Holders of a majority of the Voting Securities to be registered (Selling Holder Counsel), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 9.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Voting Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Voting Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Voting Securities agree to forfeit their right to one registration pursuant to Sections 9.1(a) or 9.1(b), as the case may be then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Sections 9.1(a) or 9.1(b). All Selling Expenses relating to Voting Securities registered pursuant to this Section 9 shall be borne and paid by the Holders pro rata on the basis of the number of Voting Securities registered on their behalf. |
9.7. |
Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 9. |
9.8. |
Indemnification. If any Voting Securities are included in a registration statement under this Section 9 or in connection with a direct listing: |
(a) |
To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 9.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration. |
(b) |
To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), |
30
any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 9.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Section 9.8(b) and Section 9.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder. |
(c) |
Promptly after receipt by an indemnified party under this Section 9.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 9.8, to the extent that such failure materially prejudices the indemnifying partys ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9.8. |
(d) |
To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 9.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, |
31
notwithstanding the fact that this Section 9.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 9.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Voting Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holders liability pursuant to this Section 9.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 9.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder. |
(e) |
Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; provided, however, that the foregoing provisions shall control as to any matter provided for or addressed thereby that is not provided for or addressed by the underwriting agreement. |
(f) |
Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 9.8 shall survive the completion of any offering of Voting Securities in a registration under this Section 9, and otherwise shall survive the termination of this Agreement or any provision(s) of this Agreement. |
32
9.9. |
Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S 3, the Company shall: |
(a) |
make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the earlier of the (i) effective date of the registration statement filed by the Company for the IPO or (ii) effective date of the registration statement filed by the Company for a direct listing; |
(b) |
use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and |
(c) |
furnish to any Holder, so long as the Holder owns any Voting Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the registration statement filed by the Company for the IPO or a direct listing), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S 3 (at any time after the Company so qualifies); and (ii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S 3 (at any time after the Company so qualifies to use such form). |
9.10. |
Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Voting Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would (i) provide to such holder or prospective holder the right to include securities in any registration on other than either a pro rata basis with respect to the Voting Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Voting Securities that they wish to so include or (ii) allow such holder or prospective holder to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Voting Securities of the Holders that are included; provided that this limitation shall not apply to Voting Securities acquired by any additional Investor that becomes a party to this Agreement. |
9.11. |
Market Stand-off Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1, and ending on the date specified by the Company and the managing underwriter (such period not to exceed 180 days in the case of the IPO (excluding a direct listing)), (i) lend; offer; pledge; sell; contract to sell; sell any option or |
33
contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 9.11 shall apply only to the IPO (excluding a direct listing) and shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the Immediate Family Member of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company obtains a similar agreement from all stockholders individually owning more than 1% of the Companys outstanding Common Stock. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 9.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 9.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Company stockholders that are subject to such agreements, based on the number of shares subject to such agreements. |
9.12. |
Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 9 after the earlier of (i) three years following the consummation of the IPO, (ii) such time following the IPO as SEC Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holders shares during a three month period without registration, or (iii) a Company Sale. |
10. |
Information Rights. The Company shall deliver to each Major Investor, provided that the Board has not reasonably determined that such Major Investor is a Competitor of the Company: |
(a) |
as soon as practicable, but in any event within 100 days after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders equity as of the end of such year, all audited and prepared in accordance with GAAP; |
(b) |
as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders equity as of the end of such fiscal quarter, all |
34
prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP); and |
(c) |
a copy of the Budget for each Fiscal Year after such Budget is approved by the Board. |
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Section 10 to the contrary, the Company may cease providing the information set forth in this Section 10 during the period starting with the date 60 days before the Companys good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Companys covenants under this Section 10 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
11. |
Miscellaneous. |
11.1. |
Termination. Sections 2 through 8 and Section 10 shall terminate and be of no further force and effect upon the earlier of (a) the consummation of an IPO and (b) a Company Sale. Except as expressly provided herein, any party to this Agreement shall cease to be a party hereto and this Agreement shall terminate with respect to such party at the time such party no longer owns any Securities. No termination of this Agreement (or any provision thereof) shall (i) relieve any party of any obligation or liability for damages resulting from such partys breach of this Agreement (or any provision thereof) prior to the termination of this Agreement with respect to such party or (ii) terminate any provision hereof, that, by its terms, survives such termination. |
11.2. |
Amendment and Waiver. |
(a) |
Any term of this Agreement may be amended or otherwise modified only by an instrument executed by Tulco, each of the Founders, and the Investor Majority. Notwithstanding the foregoing, this Agreement may not be amended, modified or terminated and the observance of any term hereof may not be waived with respect to any Investor in any way which would adversely affect the rights of such Investor hereunder in a manner disproportionate to any adverse effect such amendment, modification, termination or waiver would have on the rights of each other Investor hereunder without the written consent of such Investor. |
(b) |
No breach of any provision hereof shall be deemed waived unless expressly waived in writing by the party who may assert such breach. No waiver that may be given by a party shall be applicable except in the specific instance for which it is given. No waiver of any provision hereof shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall any such |
35
waiver constitute a continuing waiver, unless otherwise expressly provided therein. Except where a specific period for action or inaction is provided in this Agreement, neither the failure nor any delay on the part of any party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies of the parties with respect to the subject matter hereof are cumulative and not alternative. |
(c) |
Any term of any Side Letter (as defined below) may be amended or otherwise modified only by an instrument executed by the parties thereto. |
11.3. |
Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including, without limitation, transferees). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. |
11.4. |
Governing Law. |
(a) |
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. |
(b) |
Each of the parties hereto (i) irrevocably submits itself to the exclusive jurisdiction of the United States District Court for the Central District of California, and in the absence of such federal jurisdiction, the parties consent to be subject to the exclusive jurisdiction of the state courts located in Los Angeles, California, in the event any dispute arises out of this Agreement, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that it will not bring any action relating to this Agreement in any court other than as described in Section 11.4(b)(i), other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court described in Section 11.4(b)(i), and (iv) waives any right to trial by jury with respect to any suit, action or proceeding directly or indirectly related to or arising out of this Agreement. Each of the parties hereto further agrees that notice as provided herein shall constitute sufficient service of process and waives any argument that such service is insufficient. Each of the parties hereto hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action related to or arising out of this Agreement, that (x) the action in any such court is brought in an inconvenient forum, (y) the venue of such action is improper or (z) this Agreement or the subject matter hereof may not be enforced in or by such courts. |
36
11.5. |
Confidentiality. Each Holder agrees to keep confidential and not to disclose, divulge or use for any purpose (other than to monitor its investment in the Company) any proprietary or confidential information furnished to such Holder by the Company (including, without limitation, pursuant to this Agreement), except that such Holder may disclose such proprietary or confidential information (a) to any partner, subsidiary, advisor, affiliate, limited partner, prospective limited partner, regulator or parent of such Holder as long as such party is advised of and agrees or has agreed to be bound by the confidentiality provisions of this Section 11.5 or comparable restrictions, (b) at such time as it enters the public domain through no fault of such Holder; (c) that is communicated to it free of any obligation of confidentiality; (d) that is developed by Holder or its agents independently of and without reference to any confidential information communicated by the Company; or (e) as required by applicable law, regulation, rule, court order or subpoena, provided that such Holder provides the Company with reasonable prior written notice of such disclosure and makes a reasonable effort to obtain, or to assist the Company in obtaining, a protective order preventing or limiting the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation required, or for which the order was issued.. |
11.6. |
Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered by facsimile, electronic mail (including, without limitation, pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes. |
11.7. |
Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement. |
11.8. |
Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. |
11.9. |
Entire Agreement. This Agreement, the Secondary Transaction Agreement, the agreements and documents referred to herein and therein, together with all the schedules and exhibits hereto and thereto, and certain Side Letter Agreements, each dated as of even date herewith, by and between the Company and certain of the Investors (the Side Letters) constitute the full and entire understanding and agreement of the parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. |
11.10. |
Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, or (c) one (1) day after deposit with a |
37
nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof, at such other address or electronic mail address as such party may designate by ten (10) days advance written notice to the other parties hereto. |
11.11. |
Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as any other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder. |
11.12. |
Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed by the parties hereto in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise. The parties hereto agree that the right of specific performance and other equitable relief is an integral part of the transactions contemplated by this Agreement and without that right, the parties would not have entered into this Agreement. Each of the parties hereto hereby waives (a) any defenses in any action for specific performance, including, without limitation, the defense that a remedy at law would be adequate and (b) any requirement under any law to post a bond or other security as a prerequisite to obtaining equitable relief. |
11.13. |
Spousal Consent. Each Holder that is a natural person and who is married on the Effective Date shall cause such Holders spouse to execute and deliver to the Company a consent of spouse in the form of Exhibit B hereto (a Spousal Consent), dated as of the date hereof. If any Holder that is a natural person should marry following the date of this Agreement, such Holder shall cause his or her spouse to execute and deliver to the Company a Spousal Consent within thirty (30) days thereof. |
[Remainder of Page Intentionally Left Blank]
38
Exhibit 5.1
1271 Avenue of the Americas New York, New York 10020-1401 Tel: +1.212.906.1200 Fax: +1.212.751.4864 www.lw.com |
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FIRM / AFFILIATE OFFICES | |||
May 20, 2021 |
Beijing Boston Brussels Century City Chicago Dubai Düsseldorf Frankfurt Hamburg Hong Kong Houston London Los Angeles Madrid Milan |
Moscow Munich New York Orange County Paris Riyadh San Diego San Francisco Seoul Shanghai Silicon Valley Singapore Tokyo Washington, D.C. |
FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
Re: |
Registration Statement No. 333-255797; |
Up to 25,875,000 shares of Class A Common Stock, $0.0001 par value per share |
Ladies and Gentlemen:
We have acted as special counsel to FIGS, Inc., a Delaware corporation (the Company), in connection with the proposed registration of up to 25,875,000 shares (the Shares) of the Companys Class A common stock, par value $0.0001 per share (the Common Stock), which includes up to 5,875,000 shares of Common Stock to be issued and sold by the Company (the Company Shares) and up to 20,000,000 shares of Common Stock to be sold by the selling stockholder (including up to 3,375,000 shares of Common Stock issuable upon exercise of the underwriters option to purchase additional shares from the selling stockholder) (the Stockholder Shares). The Shares are included in a registration statement on Form S-1 under the Securities Act of 1933, as amended (the Act), initially filed with the Securities and Exchange Commission (the Commission) on May 5, 2021 (Registration No. 333-255797) (as amended, the Registration Statement). The term Shares shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement. This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related Prospectus, other than as expressly stated herein with respect to the issue of the Shares.
As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to the General Corporation Law of the State of Delaware and we express no opinion with respect to any other laws.
May 20, 2021
Page 2
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, (i) when the amended and restated certificate of incorporation of the Company in the form most recently filed as an exhibit to the Registration Statement (the Amended and Restated Certificate of Incorporation), has been duly filed with the Secretary of State of the State of Delaware and when the Company Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the purchasers and have been issued by the Company against payment therefor (not less than par value) in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the issue and sale of the Company Shares will have been duly authorized by all necessary corporate action of the Company and the Company Shares will be validly issued, fully paid and nonassessable and (ii) when the Amended and Restated Certificate of Incorporation has been duly filed with the Secretary of State of the State of Delaware, the Stockholder Shares will have been duly authorized by all necessary corporate action of the Company and will be validly issued, fully paid and non-assessable. In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the General Corporation Law of the State of Delaware.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading Legal Matters. We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) with respect to the Shares. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ LATHAM & WATKINS LLP
Exhibit 10.5
FIGS, INC.
2021 EQUITY INCENTIVE AWARD PLAN
ARTICLE I.
PURPOSE
The Plans purpose is to enhance the Companys ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities. Capitalized terms used in the Plan are defined in Article XI.
ARTICLE II.
ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.
ARTICLE III.
ADMINISTRATION AND DELEGATION
3.1 Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award Agreement as it deems necessary or appropriate to administer the Plan and any Awards. The Administrators determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.
3.2 Appointment of Committees. To the extent Applicable Laws permit, the Board or the Administrator may delegate any or all of its powers under the Plan to one or more Committees or committees of officers of the Company or any of its Subsidiaries. The Board or the Administrator, as applicable, may rescind any such delegation, abolish any such committee or Committee and/or re-vest in itself any previously delegated authority at any time.
ARTICLE IV.
STOCK AVAILABLE FOR AWARDS
4.1 Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, the maximum number of Shares that may be issued pursuant to Awards under the Plan shall be equal to the Overall Share Limit. As of the Effective Date, the Company will cease granting awards under the Prior Plan; however, Prior Plan Awards will remain subject to the terms of the Prior Plan. Shares issued under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares. Shares issued under the Plan will be shares of Class A Common Stock.
4.2 Share Recycling. If all or any part of an Award or a Prior Plan Award expires, lapses or is terminated, exchanged for or settled in cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the
Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring) paid by the Participant for such Shares or not issuing any Shares covered by the Award or Prior Plan Award, the unused Shares covered by the Award or Prior Plan Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award or Prior Plan Award and/or to satisfy any applicable tax withholding obligation with respect to an Award or Prior Plan Award (including Shares retained by the Company from the Award or Prior Plan Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not count against the Overall Share Limit. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under Section 4.1 and shall not be available for future grants of Awards: (a) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (b) Shares purchased on the open market with the cash proceeds from the exercise of Options.
4.3 Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 100,000,0001 Shares may be issued pursuant to the exercise of Incentive Stock Options.
4.4 Substitute Awards. In connection with an entitys merger or consolidation with the Company or the Companys acquisition of an entitys property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees, Consultants or Directors prior to such acquisition or combination.
4.5 Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time; provided that, commencing with the calendar year following the calendar year in which the Effective Date occurs, the sum of any cash compensation, or other compensation,
1 |
Reflects post-split number. |
2
and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director with respect to any fiscal year of the Company may not exceed $700,000 (which limit shall not apply to the compensation for any non-employee Director of the Company who serves in any capacity in addition to that of a non-employee Director for which he or she receives additional compensation).
ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations in the Plan that apply to Incentive Stock Options. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised. Such amount shall be subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
5.2 Exercise Price. The Administrator will establish each Options and Stock Appreciation Rights exercise price and specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option (subject to Section 5.6) or Stock Appreciation Right. Notwithstanding the foregoing, in the case of an Option or a Stock Appreciation Right that is a Substitute Award, the exercise price per share of the Shares subject to such Option or Stock Appreciation Right, as applicable, may be less than the Fair Market Value per share on the date of grant; provided that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.
5.3 Duration. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option) (i) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (ii) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a lock-up agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is 30 days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Notwithstanding the foregoing, to the extent permitted under Applicable Laws, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation, confidentiality or other similar restrictive covenant provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right of the Participant and the Participants transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall terminate immediately upon such violation, unless the Company otherwise determines.
3
5.4 Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
5.5 Payment Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:
(a) cash, wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted;
(b) if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (i) delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (ii) the Participants delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;
(c) to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;
(d) to the extent permitted by the Administrator, surrendering Shares then issuable upon the Options exercise valued at their Fair Market Value on the exercise date;
(e) to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or
(f) to the extent permitted by the Company, any combination of the above payment forms approved by the Administrator.
5.6 Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Options grant date, and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an incentive stock option under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an incentive stock option under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
4
ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS; DIVIDEND EQUIVALENTS
6.1 General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Companys right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement.
6.2 Restricted Stock.
(a) Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(b) Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
6.3 Restricted Stock Units.
(a) Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participants election, in a manner intended to comply with Section 409A.
(b) Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
6.4 Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units or Other Stock or Cash Based Award may provide a Participant with the right to receive Dividend Equivalents, and no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines.
5
ARTICLE VIII.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
8.1 Equity Restructuring(a) . In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Awards exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
8.2 Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(a) To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participants rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participants rights, in any case, is equal to or less than zero, then the Award may be terminated without payment; provided, further, that Awards held by members of the Board will be settled in Shares on or immediately prior to the applicable event if the Administrator takes action under this clause (a);
(b) To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(c) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
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(d) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price or applicable performance goals), and the criteria included in, outstanding Awards;
(e) To replace such Award with other rights or property selected by the Administrator; and/or
(f) To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3 Effect of Non-Assumption in a Change in Control. Notwithstanding the provisions of Section 8.2, if a Change in Control occurs and a Participants Awards are not continued, converted, assumed, or replaced with a substantially similar award by (a) the Company, or (b) a successor entity or its parent or subsidiary (an Assumption), and provided that the Participant has not had a Termination of Service, then, immediately prior to the Change in Control, such Awards shall become fully vested, exercisable and/or payable, as applicable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse, in which case, such Awards shall be canceled upon the consummation of the Change in Control in exchange for the right to receive the Change in Control consideration payable to other holders of Common Stock (i) which may be on such terms and conditions as apply generally to holders of Common Stock under the Change in Control documents (including, without limitation, any escrow, earn-out or other deferred consideration provisions) or such other terms and conditions as the Administrator may provide, and (ii) determined by reference to the number of shares subject to such Awards and net of any applicable exercise price; provided that to the extent that any Awards constitute nonqualified deferred compensation that may not be paid upon the Change in Control under Section 409A without the imposition of taxes thereon under Section 409A, the timing of such payments shall be governed by the applicable Award Agreement (subject to any deferred consideration provisions applicable under the Change in Control documents); and provided, further, that if the amount to which a Participant would be entitled upon the settlement or exercise of such Award at the time of the Change in Control is equal to or less than zero, then such Award may be terminated without payment. The Administrator shall determine whether an Assumption of an Award has occurred in connection with a Change in Control.
8.4 Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to 60 days before or after such transaction.
8.5 General. Except as expressly provided in the Plan or the Administrators action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 8.1 or the Administrators action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Awards grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will
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not affect or restrict in any way the Companys right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Companys capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrators consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. Any permitted transfer of an Award hereunder shall be without consideration, except as required by Applicable Law. References to a Participant, to the extent relevant in the context, will include references to a Participants authorized transferee that the Administrator specifically approves.
9.2 Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. The Award Agreement will contain the terms and conditions applicable to an Award. Each Award may contain terms and conditions in addition to those set forth in the Plan.
9.3 Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4 Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participants Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participants legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.
9.5 Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by Applicable Law to be withheld in connection with such Participants Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the applicable statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. In the absence of a contrary determination by the Company (or, with respect to withholding pursuant to clause (ii) below with respect to Awards held by individuals subject to Section 16 of the Exchange Act, a contrary determination by the Administrator), all tax withholding obligations will be calculated based on the minimum applicable statutory withholding rates. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, provided that the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares delivered by attestation and Shares retained from the Award creating the tax obligation, valued at their fair market value on the date of delivery, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including electronically or telephonically to the extent
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permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. Notwithstanding any other provision of the Plan, the number of Shares which may be so delivered or retained pursuant to clause (ii) of the immediately preceding sentence shall be limited to the number of Shares which have a fair market value on the date of delivery or retention no greater than the aggregate amount of such liabilities based on the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America). If any tax withholding obligation will be satisfied under clause (ii) above by the Companys retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participants behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participants acceptance of an Award under the Plan will constitute the Participants authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
9.6 Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participants consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participants rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may, without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.
9.7 Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Companys satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Companys inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.
9.8 Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
9.9 Cash Settlement. Without limiting the generality of any other provision of the Plan, the Administrator may provide, in an Award Agreement or subsequent to the grant of an Award, in its discretion, that any Award may be settled in cash, Shares or a combination thereof.
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ARTICLE X.
MISCELLANEOUS
10.1 No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2 No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3 Effective Date and Term of Plan. Unless earlier terminated by the Board, the Plan will become effective on the day prior to the Public Trading Date and will remain in effect until the tenth anniversary of earlier of (i) the date the Board adopted the Plan or (ii) the date the Companys stockholders approved the Plan, but Awards previously granted may extend beyond that date in accordance with the Plan. Notwithstanding anything to the contrary in the Plan, an Incentive Stock Option may not be granted under the Plan after 10 years from the earlier of (i) the date the Board adopted the Plan or (ii) the date the Companys stockholders approved the Plan. If the Plan is not approved by the Companys stockholders, the Plan will not become effective and no Awards will be granted under the Plan and the Prior Plan will continue in full force and effect in accordance with its terms.
10.4 Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participants consent. No Awards may be granted under the Plan during any suspension period or after the Plans termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
10.5 Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
10.6 Section 409A.
(a) General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participants consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A,
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including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Awards grant date. The Company makes no representations or warranties as to an Awards tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant nonqualified deferred compensation subject to taxes, penalties or interest under Section 409A.
(b) Separation from Service. If an Award constitutes nonqualified deferred compensation under Section 409A, any payment or settlement of such Award upon a termination of a Participants Service Provider relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participants separation from service (within the meaning of Section 409A), whether such separation from service occurs upon or after the termination of the Participants Service Provider relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a termination, termination of employment or like terms means a separation from service.
(c) Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of nonqualified deferred compensation required to be made under an Award to a specified employee (as defined under Section 409A and as the Administrator determines) due to his or her separation from service will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such separation from service (or, if earlier, until the specified employees death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of nonqualified deferred compensation under such Award payable more than six months following the Participants separation from service will be paid at the time or times the payments are otherwise scheduled to be made. Furthermore, notwithstanding any contrary provision of the Plan or any Award Agreement, any payment of nonqualified deferred compensation under the Plan that may be made in installments shall be treated as a right to receive a series of separate and distinct payments.
10.7 Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plans administration or interpretation, against any cost or expense (including attorneys fees) or liability (including any sum paid in settlement of a claim with the Administrators approval) arising from any act or omission concerning this Plan unless arising from such persons own fraud or bad faith.
10.8 Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to 180 days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
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10.9 Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participants participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participants name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the Data). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participants participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participants country, or elsewhere, and the Participants country may have different data privacy laws and protections than the recipients country. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participants participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participants participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participants ability to participate in the Plan and, in the Administrators discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
10.10 Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
10.11 Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
10.12 Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any states choice-of-law principles requiring the application of a jurisdictions laws other than the State of Delaware.
10.13 Claw-back Provisions. All Awards (including, without limitation, any proceeds, gains or other economic benefit actually or constructively received by Participant upon any receipt or exercise of any Award or upon the receipt or resale of any shares of Common Stock underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder), as and to the extent set forth in such claw-back policy or the Award Agreement.
10.14 Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plans text, rather than such titles or headings, will control.
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10.15 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.
10.16 Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.
10.17 Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all brokers fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participants applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participants obligation.
ARTICLE XI.
DEFINITIONS
As used in the Plan, the following words and phrases will have the following meanings:
11.1 Administrator means the Board or a Committee to the extent that the Boards powers or authority under the Plan have been delegated to such Committee.
11.2 Applicable Laws means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3 Award means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Dividend Equivalents, or Other Stock or Cash Based Awards.
11.4 Award Agreement means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
11.5 Board means the Board of Directors of the Company.
11.6 Change in Control means and includes each of the following:
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(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, any Permitted Holder, an employee benefit plan maintained by the Company or any of its Subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof (a Non-Transactional Change in Control); or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Companys assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least a majority of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a change in control event, as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a change in control event as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
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11.7 Class A Common Stock means the Class A common stock of the Company, par value of $0.0001 per share.
11.8 Class B Common Stock means the Class B common stock of the Company, par value of $0.0001 per share.
11.9 Closing Date means the date on which the Companys initial public offering closes.
11.10 Code means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.11 Committee means one or more committees or subcommittees of the Board, which may include one or more Company directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a non-employee director within the meaning of Rule 16b-3; however, a Committee members failure to qualify as a non-employee director within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
11.12 Common Stock means the Class A Common Stock or Class B Common Stock .
11.13 Company means FIGS, Inc., a Delaware corporation, or any successor.
11.14 Consultant means any consultant or advisor, engaged by the Company or any of its Subsidiaries to render services to such entity, who qualifies as a consultant or advisor under the applicable rules of Form S-8 Registration Statement.
11.15 Designated Beneficiary means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participants rights if the Participant dies or becomes incapacitated. Without a Participants effective designation, Designated Beneficiary will mean the Participants estate.
11.16 Director means a Board member.
11.17 Disability means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
11.18 Dividend Equivalents means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
11.19 Employee means any employee of the Company or its Subsidiaries.
11.20 Equity Restructuring means, as determined by the Administrator, a non-reciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, or other large, nonrecurring cash dividend, that affects the shares of Common Stock (or other securities of the Company) or the share price of Common Stock (or other securities of the Company) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
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11.21 Exchange Act means the Securities Exchange Act of 1934, as amended.
11.22 Fair Market Value means, as of any date, the value of a share of Common Stock determined as follows: (a) if the Class A Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (b) if the Class A Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (c) without an established market for the Class A Common Stock, the Administrator will determine the Fair Market Value in its discretion.
Notwithstanding the foregoing, with respect to any Award granted on the pricing date of the Companys initial public offering, the Fair Market Value shall mean the initial public offering price of a Share as set forth in the Companys final prospectus relating to its initial public offering filed with the Securities and Exchange Commission.
11.23 Fully Diluted Shares means, as of any given date, the sum of (i) the total number of outstanding Shares of Class A Common Stock and Class B Common Stock, excluding any shares of preferred stock that may be converted and (ii) the total number of Shares of Class A Common Stock underlying equity awards granted under the Prior Plan with respect to which Shares have not actually been issued, in each case as of such date.
11.24 Greater Than 10% Stockholder means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.
11.25 Incentive Stock Option means an Option intended to qualify as an incentive stock option as defined in Section 422 of the Code.
11.26 Non-Qualified Stock Option means an Option, or portion thereof, not intended or not qualifying as an Incentive Stock Option.
11.27 Option means an option to purchase Shares, which will either be an Incentive Stock option or a Non-Qualified Stock Option.
11.28 Other Stock or Cash Based Awards means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property awarded to a Participant under Article VII.
11.29 Overall Share Limit means the sum of (a) 5,000,0002 Shares; (b) if, on the Closing Date, the number of Shares in subclause (a) equals less than 5% of the Fully Diluted Shares as of the Closing Date, an increase to the Overall Share Limit on the Closing Date in an amount such that the aggregate number of Shares available for issuance pursuant to Awards which may be granted under the Plan pursuant
2 |
Reflects post-split number. |
16
to subclauses (a) and (b) after such increase is equal to 5% of the Fully Diluted Shares on the Closing Date; (c) any Shares which, as of the Effective Date, are (i) available for issuance under the Prior Plan or (ii) subject to Prior Plan Awards which, on or following the Effective Date, become available for issuance under the Plan pursuant to Article IV (which aggregate number of subclauses (i) and (ii) added to the Overall Share Limit shall not exceed 49,721,292 Shares3). In addition, on the first day of each calendar year beginning on and including January 1, 2022 and ending on and including January 1, 2031, the Overall Share Limit shall be increased by (i) a number of Shares such that the aggregate number of Shares available for grant under the Plan immediately following such increase shall equal 5% of the aggregate number of shares of Class A Common Stock and Class B Common Stock outstanding on the final day of the immediately preceding calendar year, or (ii) such smaller number of Shares as is determined by the Board.
11.30 Participant means a Service Provider who has been granted an Award.
11.31 Performance Criteria mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include the following: net earnings or losses (either before or after one or more of interest, taxes, depreciation, amortization, and non-cash equity-based compensation expense); gross or net sales or revenue or sales or revenue growth; net income (either before or after taxes) or adjusted net income; profits (including but not limited to gross profits, net profits, profit growth, net operation profit or economic profit), profit return ratios or operating margin; budget or operating earnings (either before or after taxes or before or after allocation of corporate overhead and bonus); cash flow (including operating cash flow and free cash flow or cash flow return on capital); return on assets; return on capital or invested capital; cost of capital; return on stockholders equity; total stockholder return; return on sales; costs, reductions in costs and cost control measures; expenses; working capital; earnings or loss per share; adjusted earnings or loss per share; price per share or dividends per share (or appreciation in or maintenance of such price or dividends); regulatory achievements or compliance; implementation, completion or attainment of objectives relating to research, development, regulatory, commercial, or strategic milestones or developments; market share; economic value or economic value added models; division, group or corporate financial goals; customer satisfaction/growth; customer service; employee satisfaction; recruitment and maintenance of personnel; human capital management (including diversity and inclusion); supervision of litigation and other legal matters; strategic partnerships and transactions; financial ratios (including those measuring liquidity, activity, profitability or leverage); debt levels or reductions; sales-related goals; financing and other capital raising transactions; cash on hand; acquisition activity; investment sourcing activity; and marketing initiatives, any of which may be measured in absolute terms or as compared to any incremental increase or decrease. Such performance goals also may be based solely by reference to the Companys performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary, or based upon performance relative to performance of other companies or upon comparisons of any of the indicators of performance relative to performance of other companies.
11.32 Permitted Holder means each of the Stockholder Group, any member of the Stockholder Group or any of their respective affiliates.
11.33 Plan means this 2021 Equity Incentive Award Plan.
11.34 Prior Plan means the Figs, Inc. 2016 Equity Incentive Plan, as amended and restated.
11.35 Prior Plan Award means an award outstanding under the Prior Plan as of the Effective Date.
3 |
NTD: Reflects post-split number. |
17
11.36 Public Trading Date means the first date upon which the Class A Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
11.37 Restricted Stock means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.38 Restricted Stock Unit means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.39 Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act.
11.40 Section 409A means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.41 Securities Act means the Securities Act of 1933, as amended.
11.42 Service Provider means an Employee, Consultant or Director.
11.43 Shares means a share of Class A Common Stock.
11.44 Stock Appreciation Right means a stock appreciation right granted under Article V.
11.45 Stockholder Group means the group (as such term is used in Section 13(d) of the Exchange Act) consisting of Heather Hasson, Catherine Spear, Heather Hasson Revocable Trust U/A/D 12/18/2017, The Catherine Spear Revocable Trust U/A/D 12/18/2017, The Wingaersheek Irrevocable Trust I, U/A/D 10/15/2020, The Wingaersheek Irrevocable Trust II, U/A/D 10/15/2020, The Maple Tree Irrevocable Trust, U/A/D 10/16/2020 and Tulco, LLC, in each case together with their Permitted Transferees (as defined in the Companys Amended and Restated Certificate of Incorporation).
11.46 Subsidiary means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
11.47 Substitute Awards shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
11.48 Termination of Service means the date the Participant ceases to be a Service Provider.
* * * * *
18
Exhibit 10.6
FIGS, INC.
2021 EQUITY INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
FIGS, Inc., a Delaware corporation (the Company) has granted to the participant listed below (Participant) the stock option (the Option) described in this Stock Option Grant Notice (the Grant Notice), subject to the terms and conditions of the FIGS, Inc. 2021 Equity Incentive Award Plan (as amended from time to time, the Plan) and the Stock Option Agreement attached hereto as Exhibit A (the Agreement), both of which are incorporated into this Grant Notice by reference. Capitalized terms not specifically defined in this Grant Notice or the Agreement have the meanings given to them in the Plan.
Participant: | [To be specified] | |
Grant Date: | [To be specified] | |
Exercise Price per Share: | [To be specified] | |
Shares Subject to the Option: | [To be specified] | |
Final Expiration Date: | [To be specified] | |
Vesting Commencement Date: | [To be specified] | |
Vesting Schedule: | [To be specified] | |
Type of Option | [Incentive Stock Option]/[Non-Qualified Stock Option] |
By accepting (whether in writing, electronically or otherwise) the Option, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
FIGS, INC. | PARTICIPANT | |||||||
By: |
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Name: |
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[Participant Name] | ||||||
Title: |
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Exhibit A
STOCK OPTION AGREEMENT
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Grant of Option. The Company has granted to Participant the Option effective as of the grant date set forth in the Grant Notice (the Grant Date).
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
ARTICLE II.
PERIOD OF EXERCISABILITY
2.1 Commencement of Exercisability. The Option will vest and become exercisable according to the vesting schedule in the Grant Notice (the Vesting Schedule) except that any fraction of a Share as to which the Option would be vested or exercisable will be accumulated and will vest and become exercisable only when a whole Share has accumulated. In addition, upon Participants Termination of Service due to Participants death or Disability, in either case, on or after the first anniversary of Participants employment or service commencement date, the Option will vest and become exercisable in full. Notwithstanding anything in the Grant Notice, the Plan or this Agreement to the contrary, unless the Administrator otherwise determines, the Option will immediately expire and be forfeited as to any portion that is not vested and exercisable as of Participants Termination of Service for any reason (after taking into consideration any accelerated vesting and exercisability which may occur in connection with such Termination of Service).
2.2 Duration of Exercisability. The Vesting Schedule is cumulative. Any portion of the Option which vests and becomes exercisable will remain vested and exercisable until the Option expires. The Option will be forfeited immediately upon its expiration.
2.3 Expiration of Option. The Option may not be exercised to any extent by anyone after, and will expire on, the first of the following to occur:
(a) The final expiration date in the Grant Notice; provided, however, such final expiration date may be extended pursuant to Section 5.3 of the Plan;
(b) Except as the Administrator may otherwise approve, the expiration of three months from the date of Participants Termination of Service, unless Participants Termination of Service is for Cause or by reason of Participants death or Disability;
(c) Except as the Administrator may otherwise approve, the expiration of one year from the date of Participants Termination of Service by reason of Participants death or Disability; and
(d) Except as the Administrator may otherwise approve, Participants Termination of Service for Cause.
1
[As used in this Agreement, Cause shall have such meaning as is contained in Participants employment offer letter, employment agreement or services agreement or, if not defined therein, shall mean a determination by the Company of (i) Participants unauthorized use or disclosure of the Companys confidential information or trade secrets; (ii) Participants breach of any agreement between Participant and the Company; (iii) Participants failure to comply with the Companys written policies or rules; (iv) Participants conviction of, or plea of guilty or no contest to, a felony under the laws of the United States or any State thereof; (v) Participants gross negligence or willful misconduct; or (vi) Participants continuing failure to perform assigned duties after receiving notification of such failure from the Company.]
ARTICLE III.
EXERCISE OF OPTION
3.1 Person Eligible to Exercise. During Participants lifetime, only Participant may exercise the Option. After Participants death, any exercisable portion of the Option may, prior to the time the Option expires, be exercised by Participants Designated Beneficiary as provided in the Plan.
3.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised, in whole or in part, according to the procedures in the Plan at any time prior to the time the Option or portion thereof expires, except that the Option may only be exercised for whole Shares.
3.3 Tax Withholding; Exercise Price.
(a) Subject to Section 3.3(b) and 3.3(c), payment of the exercise price and withholding tax obligations with respect to the Option may be by any of the following, or a combination thereof, as determined by [the Company in its sole discretion / Participant or the Administrator]1:
(i) Cash or check;
(ii) In whole or in part by delivery of Shares, including Shares delivered by attestation and Shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery; or
(iii) In whole or in part by the Company withholding of Shares otherwise issuable upon exercise of this Award.
(b) Unless [the Company / Participant or the Administrator] otherwise determines, and subject to Section 10.17 of the Plan, payment of the exercise price and withholding tax obligations with respect to the Option shall be by [delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the applicable exercise price and tax withholding obligations] / [delivery (including electronically or telephonically to the extent permitted by the Company) by Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company that Participant has placed a market sell order with such broker with respect to Shares then-issuable upon exercise of the Option, and that the broker has been directed to deliver promptly to the Company funds sufficient to satisfy the applicable exercise price and tax withholding
obligations; provided, that payment of such proceeds is then made to the Company at such time as may be required by the Administrator]2.
1 |
NTD: Participant or the Administrator for Section 16 individuals. The Company for non-Section 16 individuals. |
2 |
NTD: Use second bracketed language for Section 16 individuals. |
2
(c) Subject to Section 9.5 of the Plan, the applicable tax withholding obligation will be determined based on Participants Applicable Withholding Rate. Participants Applicable Withholding Rate shall mean (i) if Participant is subject to Section 16 of the Exchange Act, the greater of (A) the minimum applicable statutory tax withholding rate or (B) with Participants consent, the maximum individual tax withholding rate permitted under the rules of the applicable taxing authority for tax withholding attributable to the underlying transaction, or (ii) if Participant is not subject to Section 16 of the Exchange Act, the minimum applicable statutory tax withholding rate or such other higher rate approved by the Company; provided, however, that (i) in no event shall Participants Applicable Withholding Rate exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America); and (ii) the number of Shares tendered or withheld, if applicable, shall be rounded up to the nearest whole Share sufficient to cover the applicable tax withholding obligation, to the extent rounding up to the nearest whole Share does not result in the liability classification of the Option under generally accepted accounting principles.
(d) Participant acknowledges that Participant is ultimately liable and responsible for the exercise price and all taxes owed in connection with the Option (and, with respect to taxes, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Option). Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure the Option to reduce or eliminate Participants tax liability.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2 Clawback. The Option and the Shares issuable hereunder shall be subject to any clawback or recoupment policy in effect on the Grant Date or as may be adopted or maintained by the Company following the Grant Date, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.
4.3 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Companys General Counsel at the Companys principal office or the General Counsels then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the Designated Beneficiary) at Participants last known mailing address, email address or facsimile number in the Companys personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
3
4.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.5 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.6 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in this Agreement or the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.7 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Option will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.8 Entire Agreement; Amendment. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall materially and adversely affect the Option without the prior written consent of Participant.
4.9 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.10 Limitation on Participants Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the terms hereof.
4.11 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4
4.12 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
4.13 Incentive Stock Options. If the Option is designated as an Incentive Stock Option:
(a) Participant acknowledges that to the extent the aggregate fair market value of shares (determined as of the time the option with respect to the shares is granted) with respect to which stock options intended to qualify as incentive stock options under Section 422 of the Code, including the Option, are exercisable for the first time by Participant during any calendar year exceeds $100,000 or if for any other reason such stock options do not qualify or cease to qualify for treatment as incentive stock options under Section 422 of the Code, such stock options (including the Option) will be treated as non-qualified stock options. Participant further acknowledges that the rule set forth in the preceding sentence will be applied by taking the Option and other stock options into account in the order in which they were granted, as determined under Section 422(d) of the Code. Participant also acknowledges that if the Option is exercised more than three months after Participants Termination of Service, other than by reason of death or Disability, the Option will be taxed as a Non-Qualified Stock Option.
(b) Participant will give prompt written notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or other transfer is made (i) within two years from the Grant Date or (ii) within one year after the transfer of such Shares to Participant. Such notice will specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
* * * * *
5
Exhibit 10.7
FIGS, INC.
2021 EQUITY INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
FIGS, Inc., a Delaware corporation (the Company), has granted to the participant listed below (Participant) the Restricted Stock Units (the RSUs) described in this Restricted Stock Unit Grant Notice (this Grant Notice), subject to the terms and conditions of the FIGS, Inc. 2021 Equity Incentive Award Plan (as amended from time to time, the Plan) and the Restricted Stock Unit Agreement attached hereto as Exhibit A (the Agreement), both of which are incorporated into this Grant Notice by reference. Capitalized terms not specifically defined in this Grant Notice or the Agreement have the meanings given to them in the Plan.
Participant: | [To be specified] | |
Grant Date: | [To be specified] | |
Number of RSUs: | [To be specified] | |
Vesting Commencement Date: | [To be specified] | |
Vesting Schedule: | [To be specified] |
By accepting (whether in writing, electronically or otherwise) the RSUs, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
FIGS, INC. | PARTICIPANT | |||||||
By: |
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Name: |
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[Participant Name] | ||||||
Title: |
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Exhibit A
RESTRICTED STOCK UNIT AGREEMENT
Capitalized terms not specifically defined in this Restricted Stock Unit Agreement (this Agreement) have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Award of RSUs(a) . The Company has granted the RSUs to Participant effective as of the Grant Date set forth in the Grant Notice (the Grant Date). Each RSU represents the right to receive one Share as set forth in this Agreement. Participant will have no right to the distribution of any Shares until the time (if ever) the RSUs have vested.
1.2 Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
1.3 Unsecured Promise. The RSUs will at all times prior to settlement represent an unsecured Company obligation payable only from the Companys general assets.
ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT
2.1 Vesting; Forfeiture. The RSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of an RSU that would otherwise be vested will be accumulated and will vest only when a whole RSU has accumulated. In addition, upon Participants Termination of Service due to Participants death or Disability, in either case, on or after the first anniversary of Participants employment or service commencement date, the then-unvested RSUs will vest in full. In the event of Participants Termination of Service for any other reason, all unvested RSUs will immediately and automatically be cancelled and forfeited, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company.
2.2 Settlement.
(a) The RSUs will be paid in Shares as soon as administratively practicable after the vesting of the applicable RSU, but in no event later than March 15 of the year following the year in which the RSUs vesting date occurs.
(b) Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate Applicable Law until the earliest date the Company reasonably determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)); provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A.
ARTICLE III.
TAXATION AND TAX WITHHOLDING
3.1 Representation. Participant represents to the Company that Participant has reviewed with Participants own tax advisors the tax consequences of this award of RSUs (the Award) and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.
1
3.2 Tax Withholding.
(a) Subject to Section 3.2(b), payment of the withholding tax obligations with respect to the Award may be by any of the following, or a combination thereof, as determined by [the Company in its sole discretion / Participant or the Administrator]1:
(i) Cash or check;
(ii) In whole or in part by delivery of Shares, including Shares delivered by attestation and Shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery; or
(iii) In whole or in part by the Company withholding of Shares otherwise vesting or issuable under this Award in satisfaction of any applicable withholding tax obligations.
(b) Unless [the Company / Participant or the Administrator] otherwise determines, and subject to Section 10.17 of the Plan, payment of the withholding tax obligations with respect to the Award shall be by [delivery (including electronically or telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the applicable tax withholding obligations] / [delivery (including electronically or telephonically to the extent permitted by the Company) by Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company that Participant has placed a market sell order with such broker with respect to Shares then-issuable upon settlement of the Award, and that the broker has been directed to deliver promptly to the Company funds sufficient to satisfy the applicable tax withholding obligations; provided, that payment of such proceeds is then made to the Company at such time as may be required by the Administrator]2.
(c) Subject to Section 9.5 of the Plan, the applicable tax withholding obligation will be determined based on Participants Applicable Withholding Rate. Participants Applicable Withholding Rate shall mean (i) if Participant is subject to Section 16 of the Exchange Act, the greater of (A) the minimum applicable statutory tax withholding rate or (B) with Participants consent, the maximum individual tax withholding rate permitted under the rules of the applicable taxing authority for tax withholding attributable to the underlying transaction, or (ii) if Participant is not subject to Section 16 of the Exchange Act, the minimum applicable statutory tax withholding rate or such other higher rate approved by the Company; provided, however, that (i) in no event shall Participants Applicable Withholding Rate exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America); and (ii) the number of Shares tendered or withheld, if applicable, shall be rounded up to the nearest whole Share sufficient to cover the applicable tax withholding obligation, to the extent rounding up to the nearest whole Share does not result in the liability classification of the RSUs under generally accepted accounting principles.
1 |
NTD: Participant or the Administrator for Section 16 individuals. The Company for non-Section 16 individuals. |
2 |
NTD: Use second bracketed language for Section 16 individuals. |
2
(d) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the RSUs. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the subsequent sale of Shares. The Company and its Subsidiaries do not commit and are under no obligation to structure the RSUs to reduce or eliminate Participants tax liability.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the RSUs and the Shares subject to the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2 Clawback. The Award and the Shares issuable hereunder shall be subject to any clawback or recoupment policy in effect on the Grant Date or as may be adopted or maintained by the Company following the Grant Date, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder.
4.3 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Companys General Counsel at the Companys principal office or the General Counsels then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the Designated Beneficiary) at Participants last known mailing address, email address or facsimile number in the Companys personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.4 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.5 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.6 Successors and Assigns. The Company may assign any of its rights under this Agreement to a single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in this Agreement or the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.7 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the RSUs will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
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4.8 Entire Agreement; Amendment. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however, that except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall materially and adversely affect the RSUs without the prior written consent of Participant.
4.9 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.10 Limitation on Participants Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs, and rights no greater than the right to receive cash or the Shares as a general unsecured creditor with respect to the RSUs, as and when settled pursuant to the terms of this Agreement.
4.11 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.12 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
* * * * *
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Exhibit 10.8
FIGS, INC.
2021 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I.
PURPOSE
The purposes of this Figs, Inc. 2021 Employee Stock Purchase Plan (as it may be amended or restated from time to time, the Plan) are to assist Eligible Employees of Figs, Inc., a Delaware corporation (the Company), and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an employee stock purchase plan within the meaning of Section 423(b) of the Code, and to help Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. Masculine, feminine and neuter pronouns are used interchangeably and each comprehends the others.
2.1 Administrator shall mean the entity that conducts the general administration of the Plan as provided in Article XI. The term Administrator shall refer to the Committee unless the Board has assumed the authority for administration of the Plan as provided in Article XI.
2.2 Applicable Law shall mean the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.
2.3 Board shall mean the Board of Directors of the Company.
2.4 Change in Control means and includes each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, any Permitted Holder, an employee benefit plan maintained by the Company or any of its Subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Companys assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least a majority of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any portion of any right that constitutes nonqualified deferred compensation, the transaction or event constituting the Change in Control with respect to such right (or portion thereof) must also constitute a change in control event (as defined in Treasury Regulation §1.409A-3(i)(5)) to trigger the payment event for such right, to the extent required by Section 409A of the Code. The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a change in control event as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
2.5 Code shall mean the Internal Revenue Code of 1986, as amended and the regulations issued thereunder.
2.6 Class A Common Stock means the Class A common stock of the Company, par value of $0.0001 per share.
2.7 Class B Common Stock means the Class B common stock of the Company, par value of $0.0001 per share.
2.8 Common Stock shall mean the Class A Common Stock of the Company, and such other securities of the Company that may be substituted therefor pursuant to Article VIII.
2.9 Company shall mean Figs, Inc., a Delaware corporation.
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2.10 Compensation of an Eligible Employee shall mean the gross cash compensation received by such Eligible Employee as compensation for services to the Company or any Designated Subsidiary, including prior week adjustment, overtime payments, commissions and periodic bonuses but excluding vacation pay, holiday pay, jury duty pay, funeral leave pay, military leave pay, one-time bonuses (e.g., retention or sign on bonuses), education or tuition reimbursements, travel expenses, business and moving reimbursements, income received in connection with any stock options, stock appreciation rights, restricted stock, restricted stock units or other compensatory equity awards, fringe benefits, other special payments and all contributions made by the Company or any Designated Subsidiary for the Employees benefit under any employee benefit plan now or hereafter established.
2.11 Designated Subsidiary shall mean any Subsidiary designated by the Administrator in accordance with Section 11.3(b).
2.12 Effective Date shall mean the day prior to the Public Trading Date.
2.13 Eligible Employee shall mean an Employee who does not, immediately after any rights under this Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of Common Stock (including Class B Common Stock) and other stock of the Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code). For purposes of the foregoing sentence, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee; provided, however, that the Administrator may provide in an Offering Document that an Employee shall not be eligible to participate in an Offering Period if: (a) such Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code, (b) such Employee has not met a service requirement designated by the Administrator pursuant to Section 423(b)(4)(A) of the Code (which service requirement may not exceed two years), (c) such Employees customary employment is for 20 hours or less per week, (d) such Employees customary employment is for less than five months in any calendar year and/or (e) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a right to purchase Common Stock under the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423 of the Code, as determined by the Administrator in its sole discretion; provided, further, that any exclusion in clauses (a), (b), (c), (d) or (e) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e).
2.14 Employee shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Designated Subsidiary. Employee shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary as an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three-month period.
2.15 Enrollment Date shall mean the first Trading Day of each Offering Period, unless otherwise specified in the Offering Document.
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2.16 Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time.
2.17 Fair Market Value means, as of any date, the value of a share of Common Stock determined as follows: (a) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (b) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (c) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
2.18 Offering Document shall have the meaning given to such term in Section 4.1.
2.19 Offering Period shall have the meaning given to such term in Section 4.1.
2.20 Parent shall mean any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.21 Participant shall mean any Eligible Employee who has executed a subscription agreement and been granted rights to purchase Common Stock pursuant to the Plan.
2.22 Permitted Holder means each of the Stockholder Group, any member of the Stockholder Group or any of their respective affiliates.
2.23 Plan shall mean this Figs, Inc. 2021 Employee Stock Purchase Plan, as it may be amended from time to time.
2.24 Public Trading Date means the first date upon which the Class A Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
2.25 Purchase Date shall mean the last Trading Day of each Purchase Period.
2.26 Purchase Period shall refer to one or more periods within an Offering Period, as designated in the applicable Offering Document; provided, however, that, in the event no Purchase Period is designated by the Administrator in the applicable Offering Document, the Purchase Period for each Offering Period covered by such Offering Document shall be the same as the applicable Offering Period.
2.27 Purchase Price shall mean the purchase price designated by the Administrator in the applicable Offering Document (which purchase price shall not be less than 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower); provided, however, that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower; provided, further, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.
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2.28 Securities Act shall mean the Securities Act of 1933, as amended.
2.29 Share shall mean a share of Class A Common Stock.
2.30 Stockholder Group shall mean the group (as such term is used in Section 13(d) of the Exchange Act) consisting of Heather Hasson, Catherine Spear, Heather Hasson Revocable Trust U/A/D 12/18/2017, The Catherine Spear Revocable Trust U/A/D 12/18/2017, The Wingaersheek Irrevocable Trust I, U/A/D 10/15/2020, The Wingaersheek Irrevocable Trust II, U/A/D 10/15/2020, The Maple Tree Irrevocable Trust, U/A/D 10/16/2020 and Tulco, LLC, in each case together with their Permitted Transferees (as defined in the Companys Amended and Restated Certificate of Incorporation).
2.31 Subsidiary shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; provided, however, that a limited liability company or partnership may be treated as a Subsidiary to the extent either (a) such entity is treated as a disregarded entity under Treasury Regulation Section 301.7701-3(a) by reason of the Company or any other Subsidiary that is a corporation being the sole owner of such entity, or (b) such entity elects to be classified as a corporation under Treasury Regulation Section 301.7701-3(a) and such entity would otherwise qualify as a Subsidiary.
2.32 Trading Day shall mean a day on which national stock exchanges in the United States are open for trading.
ARTICLE III.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to Article VIII, the aggregate number of shares of Class A Common Stock that may be issued pursuant to rights granted under the Plan shall be []1 Shares. In addition to the foregoing, subject to Article VIII, on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031, the number of Shares available for issuance under the Plan shall be increased by that number of Shares equal to the lesser of (a) 1% of the aggregate number of shares of Class A Common Stock and Class B Common Stock and outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of Shares as determined by the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan. Notwithstanding anything in this Section 3.1 to the contrary, the number of Shares that may be issued or transferred pursuant to the rights granted under the Plan shall not exceed an aggregate of 50,000,0002 Shares, subject to Article VIII.
1 |
NTD: Initial share limit will be equal to 1% of the outstanding shares of all of the Companys classes of stock as of the closing of the IPO, excluding any shares that may be issued by the Company upon exercise of the underwriters over-allotment option. |
2 |
Reflects post-split number. |
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3.2 Stock Distributed. Any Common Stock distributed pursuant to the Plan may consist, in whole or in part, of authorized and unissued Common Stock, treasury stock or Common Stock purchased on the open market.
ARTICLE IV.
OFFERING PERIODS; OFFERING DOCUMENTS; PURCHASE DATES
4.1 Offering Periods. The Administrator may from time to time grant or provide for the grant of rights to purchase Common Stock under the Plan to Eligible Employees during one or more periods (each, an Offering Period) selected by the Administrator. The terms and conditions applicable to each Offering Period shall be set forth in an Offering Document adopted by the Administrator, which Offering Document shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate. The Administrator shall establish in each Offering Document one or more Purchase Periods during such Offering Period during which rights granted under the Plan shall be exercised and purchases of Shares carried out during such Offering Period in accordance with such Offering Document and the Plan. The provisions of separate Offering Periods under the Plan need not be identical.
4.2 Offering Documents. Each Offering Document with respect to an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):
(a) the length of the Offering Period, which period shall not exceed 27 months;
(b) the length of the Purchase Period(s) within the Offering Period;
(c) in connection with each Offering Period that contains only one Purchase Period the maximum number of Shares that may be purchased by any Eligible Employee during such Offering Period, which, in the absence of a contrary designation by the Administrator, shall be 10,000 Shares;
(d) in connection with each Offering Period that contains more than one Purchase Period, the maximum aggregate number of Shares which may be purchased by any Eligible Employee during each Purchase Period, which, in the absence of a contrary designation by the Administrator, shall be 10,000 Shares; and
(e) such other provisions as the Administrator determines are appropriate, subject to the Plan.
ARTICLE V.
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V and the limitations imposed by Section 423(b) of the Code.
5.2 Enrollment in Plan.
(a) Except as otherwise set forth herein or in an Offering Document or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a subscription agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.
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(b) Each subscription agreement shall designate a whole percentage of such Eligible Employees Compensation to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each payday during the Offering Period as payroll deductions under the Plan. The designated percentage may not be less than 1% and may not be more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be 20% in the absence of any such designation). The payroll deductions made for each Participant shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.
(c) A Participant may decrease the percentage of Compensation designated in his or her subscription agreement, subject to the limits of this Section 5.2, or may suspend his or her payroll deductions, at any time during an Offering Period; provided, however, that the Administrator may limit the number of changes a Participant may make to his or her payroll deduction elections during each Offering Period in the applicable Offering Document (and in the absence of any specific designation by the Administrator, a Participant shall be allowed two decreases and one suspension (but no increases) to his or her payroll deduction elections during each Offering Period with respect to such Offering Period). Any such change or suspension of payroll deductions shall be effective with the first full payroll period following ten business days after the Companys receipt of the new subscription agreement (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). In the event a Participant suspends his or her payroll deductions, such Participants cumulative payroll deductions prior to the suspension shall remain in his or her account and shall be applied to the purchase of Shares on the next occurring Purchase Date and shall not be paid to such Participant unless he or she withdraws from participation in the Plan pursuant to Article VII.
(d) Except as otherwise set forth in Section 5.8 or in an Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.
5.3 Payroll Deductions. Except as otherwise provided in the applicable Offering Document or Section 5.8, payroll deductions for a Participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which the Participants authorization is applicable, unless sooner terminated by the Participant as provided in Article VII or suspended by the Participant or the Administrator as provided in Section 5.2 and Section 5.6, respectively.
5.4 Effect of Enrollment. A Participants completion of a subscription agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Article VII or otherwise becomes ineligible to participate in the Plan.
5.5 Limitation on Purchase of Common Stock. An Eligible Employee may be granted rights under the Plan only if such rights, together with any other rights granted to such Eligible Employee under employee stock purchase plans of the Company, any Parent or any Subsidiary, as specified by Section 423(b)(8) of the Code, do not permit such employees rights to purchase stock of the Company or any Parent or Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.
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5.6 Suspension of Payroll Deductions. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 5.5 or the other limitations set forth in this Plan, a Participants payroll deductions may be suspended by the Administrator at any time during an Offering Period. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares by reason of Section 423(b)(8) of the Code, Section 5.5 or the other limitations set forth in this Plan shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
5.7 Foreign Employees. In order to facilitate participation in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents of a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Such special terms may not be more favorable than the terms of rights granted under the Plan to Eligible Employees who are residents of the United States. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.
5.8 Leave of Absence. During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, a Participant may continue participation in the Plan by making cash payments to the Company on his or her normal payday equal to his or her authorized payroll deduction.
ARTICLE VI.
GRANT AND EXERCISE OF RIGHTS
6.1 Grant of Rights. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted a right to purchase the maximum number of Shares specified under Section 4.2, subject to the limits in Section 5.5, and shall have the right to buy, on each Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participants payroll deductions accumulated prior to such Purchase Date and retained in the Participants account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the earlier of: (x) the last Purchase Date of such Offering Period, (y) last day of such Offering Period and (z) the date on which such Participant withdraws in accordance with Section 7.1 or Section 7.3.
6.2 Exercise of Rights. On each Purchase Date, each Participants accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares, up to the maximum number of Shares permitted pursuant to the terms of the Plan and the applicable Offering Document, at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be carried forward and applied toward the purchase of whole Shares for the following Offering Period. Shares issued pursuant to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.
6.3 Pro Rata Allocation of Shares. If the Administrator determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable Offering
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Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Shares are to be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate any or all Offering Periods then in effect pursuant to Article IX. The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Companys stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such Participant, without interest, in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
6.4 Withholding. At the time a Participants rights under the Plan are exercised, in whole or in part, or at the time some or all of the Shares issued under the Plan is disposed of, the Participant must make adequate provision for the Companys federal, state, or other tax withholding obligations, if any, that arise upon the exercise of the right or the disposition of the Shares. At any time, the Company may, but shall not be obligated to, withhold from the Participants compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Shares by the Participant.
6.5 Conditions to Issuance of Common Stock. The Company shall not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges, if any, on which the Common Stock is then listed;
(b) The completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The payment to the Company of all amounts that it is required to withhold under federal, state or local law upon exercise of the rights, if any; and
(e) The lapse of such reasonable period of time following the exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.
ARTICLE VII.
WITHDRAWAL; CESSATION OF ELIGIBILITY
7.1 Withdrawal. A Participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than two weeks prior to the end of the Offering Period or, if earlier, the end of the Purchase Period (or such shorter
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or longer period as may be specified by the Administrator in the Offering Document). All of the Participants payroll deductions credited to his or her account during the Offering Period not yet used to exercise his or her rights under the Plan shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal and such Participants rights for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the next Offering Period unless the Participant is an Eligible Employee and timely delivers to the Company a new subscription agreement.
7.2 Future Participation. A Participants withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
7.3 Cessation of Eligibility. Upon a Participants ceasing to be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participants account during the Offering Period shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participants rights for the Offering Period shall be automatically terminated.
ARTICLE VIII.
ADJUSTMENTS UPON CHANGES IN STOCK
8.1 Changes in Capitalization. Subject to Section 8.3, in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), Change in Control, reorganization, merger, amalgamation, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 and the limitations established in each Offering Document pursuant to Section 4.2 on the maximum number of Shares that may be purchased); (b) the class(es) and number of Shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.
8.2 Other Adjustments. Subject to Section 8.3, in the event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
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(a) To provide for either (i) termination of any outstanding right in exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property selected by the Administrator in its sole discretion;
(b) To provide that the outstanding rights under the Plan shall be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(c) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;
(d) To provide that Participants accumulated payroll deductions may be used to purchase Common Stock prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants rights under the ongoing Offering Period(s) shall be terminated; and
(e) To provide that all outstanding rights shall terminate without being exercised.
8.3 No Adjustment Under Certain Circumstances. No adjustment or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423 of the Code.
8.4 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to any outstanding rights.
ARTICLE IX.
AMENDMENT, MODIFICATION AND TERMINATION
9.1 Amendment, Modification and Termination. The Administrator may amend, suspend or terminate the Plan at any time and from time to time; provided, however, that approval of the Companys stockholders shall be required to amend the Plan to: (a) increase the aggregate number, or change the type, of shares that may be sold pursuant to rights under the Plan under Section 3.1 (other than an adjustment as provided by Article VIII); (b) change the Plan in any manner that would be considered the adoption of a new plan within the meaning of Treasury regulation Section 1.423-2(c)(4); or (c) change the Plan in any manner that would cause the Plan to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.
9.2 Certain Changes to Plan. Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, to the extent permitted by Section 423 of the Code, the Administrator shall be entitled to change or terminate the Offering Periods, limit the frequency and/or number of changes in the amount withheld from Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars,
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permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Companys processing of payroll withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participants Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion to be advisable that are consistent with the Plan.
9.3 Actions In the Event of Unfavorable Financial Accounting Consequences. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(a) altering the Purchase Price for any Offering Period, including an Offering Period underway at the time of the change in Purchase Price;
(b) shortening any Offering Period so that the Offering Period ends on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and
(c) allocating Shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Participant.
9.4 Payments Upon Termination of Plan. Upon termination of the Plan, the balance in each Participants Plan account shall be refunded as soon as practicable after such termination, without any interest thereon.
ARTICLE X.
TERM OF PLAN
The Plan shall be effective on the Effective Date. The effectiveness of the Plan shall be subject to approval of the Plan by the stockholders of the Company within 12 months following the date the Plan is first approved by the Board. No right may be granted under the Plan prior to such stockholder approval. No rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.
ARTICLE XI.
ADMINISTRATION
11.1 Administrator. Unless otherwise determined by the Board, the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan) (such committee, the Committee). The Board may at any time vest in the Board any authority or duties for administration of the Plan.
11.2 Action by the Administrator. Unless otherwise established by the Board or in any charter of the Administrator, a majority of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and, subject to Applicable Law and the Bylaws of the Company, acts approved in writing by a majority of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Designated Subsidiary, the Companys independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
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11.3 Authority of Administrator. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(a) To determine when and how rights to purchase Common Stock shall be granted and the provisions of each offering of such rights (which need not be identical).
(b) To designate from time to time which Subsidiaries of the Company shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company.
(c) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(d) To amend, suspend or terminate the Plan as provided in Article IX.
(e) Generally, to exercise such powers and to perform such acts as the Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that the Plan be treated as an employee stock purchase plan within the meaning of Section 423 of the Code.
11.4 Decisions Binding. The Administrators interpretation of the Plan, any rights granted pursuant to the Plan, any subscription agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE XII.
MISCELLANEOUS
12.1 Restriction upon Assignment. A right granted under the Plan shall not be transferable other than by will or the Applicable Laws of descent and distribution, and is exercisable during the Participants lifetime only by the Participant. Except as provided in Section 12.4 hereof, a right under the Plan may not be exercised to any extent except by the Participant. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Participants interest in the Plan, the Participants rights under the Plan or any rights thereunder.
12.2 Rights as a Stockholder. With respect to Shares subject to a right granted under the Plan, a Participant shall not be deemed to be a stockholder of the Company, and the Participant shall not have any of the rights or privileges of a stockholder, until such Shares have been issued to the Participant or his or her nominee following exercise of the Participants rights under the Plan. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein or as determined by the Administrator.
12.3 Interest. No interest shall accrue on the payroll deductions or contributions of a Participant under the Plan.
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12.4 Designation of Beneficiary.
(a) A Participant may, in the manner determined by the Administrator, file a written designation of a beneficiary who is to receive any Shares and/or cash, if any, from the Participants account under the Plan in the event of such Participants death subsequent to a Purchase Date on which the Participants rights are exercised but prior to delivery to such Participant of such Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participants account under the Plan in the event of such Participants death prior to exercise of the Participants rights under the Plan. If the Participant is married and resides in a community property state, a designation of a person other than the Participants spouse as his or her beneficiary shall not be effective without the prior written consent of the Participants spouse.
(b) Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participants death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
12.5 Notices. All notices or other communications by a Participant to the Company under or in connection with the 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.
12.6 Equal Rights and Privileges. Subject to Section 5.7, all Eligible Employees will have equal rights and privileges under this Plan so that this Plan qualifies as an employee stock purchase plan within the meaning of Section 423 of the Code. Subject to Section 5.7, any provision of this Plan that is inconsistent with Section 423 of the Code will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code.
12.7 Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
12.8 Reports. Statements of account shall be given to Participants at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
12.9 No Employment Rights. Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to employment or service with (or to remain in the employ of) the Company or any Parent or Subsidiary thereof or affect the right of the Company or any Parent or Subsidiary thereof to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.
12.10 Notice of Disposition of Shares. Each Participant shall give prompt notice to the Company of any disposition or other transfer of any Shares purchased upon exercise of a right under the Plan if such disposition or transfer is made: (a) within two years from the Enrollment Date of the Offering Period in which the Shares were purchased or (b) within one year after the Purchase Date on which such Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.
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12.11 Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.
12.12 Electronic Forms. To the extent permitted by Applicable Law and in the discretion of the Administrator, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Administrator. Before the commencement of an Offering Period, the Administrator shall prescribe the time limits within which any such electronic form shall be submitted to the Administrator with respect to such Offering Period in order to be a valid election.
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Exhibit 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Agreement) is entered into as of May [], 2021, by and between FIGS, Inc. (the Company), and Heather Hasson (Executive). The Company and Executive are referred to herein as the parties.
RECITALS
WHEREAS, the Company and Executive previously entered into that certain Employment Agreement, dated as of October 20, 2017 and amended as of September 16, 2020 (the Prior Agreement), pursuant to which Executive has been employed by the Company as its Co-Chief Executive Officer; and
WHEREAS, the Company and Executive desire to amend and restate the Prior Agreement in its entirety on the terms and conditions set forth herein, effective as of the Effective Date (as defined below).
NOW, THEREFORE, in consideration of the promises and obligations set forth below and for other good and valuable consideration, the receipt of which is hereby acknowledged by the parties, the Company and Executive agree and intend to be legally bound, as follows:
AGREEMENT
1. POSITION AND DUTIES. The Company agrees to continue to employ Executive during the Term as the Co-Chief Executive Officer of the Company. As Co-Chief Executive Officer, Executive will report to the Companys Board of Directors (the Board) and will have all of the duties, responsibilities and authority commensurate with the position.
2. OBLIGATIONS TO THE COMPANY. Executive shall not, directly or indirectly, (a) engage or participate in any outside activity that would, or would reasonably be expected to, conflict with the best interests of the Company or Executives duties to the Company, or (b) provide services to or invest in any corporation or other entity that competes or intends to compete with the business of the Company. Nothing herein shall prohibit Executive from participating in any outside activity, provided that, (i) such activity shall be reasonably limited by Executive so as not to interfere with the performance of her duties and responsibilities hereunder and (ii) such activity is approved by the Board.
3. COMPENSATION AND BENEFITS.
(a) Base Salary. During the Term, the Company shall pay Executive an annualized base salary in the amount of $1,000,000 (the Base Salary), paid in approximately equal installments in accordance with the Companys normal payroll practices.
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(b) Bonus. Executive will also be eligible to earn an annual discretionary bonus (the Annual Bonus) targeted at an amount equal to 100% of Executives Base Salary, which may be earned in an amount up to a maximum of 200% of Executives Base Salary (if maximum performance goals are achieved). For clarity, Executives Annual Bonus target for calendar year 2021 shall be based solely on Executives Base Salary as of the Effective Date (i.e., $1,000,000). The amount of the Annual Bonus will be determined in the sole discretion of the Compensation Committee of the Board (Compensation Committee) and based, in part, on Executives performance and the performance of the Company during the calendar year, as well as any other criteria the Compensation Committee deems relevant. The Company will pay Executive the Annual Bonus, if any, no later than March 15th of the calendar year following the year in which the Annual Bonus is earned. Except as otherwise provided in Section 4(d), the Annual Bonus is not earned until paid and no pro-rated amount will be paid if Executives employment terminates for any reason prior to the payment date.
(c) Benefits. During the Term, while Executive is employed by the Company, Executive (and her spouse and dependents, as applicable) shall, subject to and in accordance with the terms of the applicable plan documents and all applicable laws, be entitled to participate in the health, welfare, retirement, vacation and other employee benefit plans, practices, policies and programs generally available to other senior executives of the Company, as may be in effect from time to time (the Benefit Plans), subject in each case to the generally applicable terms and conditions of the Benefit Plan in question and to the determinations of any person or committee administering such Benefit Plan. To the extent that Executive is required to make filing(s) under the Hart-Scott-Rodino Act with respect to the acquisition of Company securities, the Company will pay the filing and legal fees associated with such filings.
(d) Expenses. During the Term, Executive shall be eligible for prompt reimbursement for business expenses reasonably and actually incurred and properly documented by Executive in accordance with the policies of the Company as may be in effect from time to time.
(e) Equity Awards.
(i) The parties agree and acknowledge that the Company previously granted to Executive the following equity awards that remain outstanding as of the Effective Date: stock option granted February 22, 2018; stock option granted June 27, 2018, restricted stock units granted June 26, 2020, and stock option granted September 16, 2020 (the Existing Equity Awards). Effective as of the closing the initial public offering (the IPO) of the Companys Class A common stock, the vesting of all shares subject to the stock options included in the Existing Equity Awards will be fully accelerated with the shares subject to such stock options subject to the lockup agreement entered into in connection with the IPO.
(ii) The Company shall grant, subject to Executives continued employment through the applicable grant date, to Executive equity-based compensation awards pursuant to the Companys 2021 Equity Incentive Plan (the Plan). Of such awards, 75% shall be granted in the form of a stock option (the Option) and the remaining 25% shall be granted in the form of a restricted stock unit award (the RSU Award and, together with the Existing Equity Awards, the Option, and any future equity awards granted to Executive, the Awards).
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(iii) The Option shall be a nonqualified stock option, shall have an exercise price per share equal to the fair market value of the Companys common stock on the applicable grant date, and shall have a maximum term of ten years from the applicable grant date. The number of shares of Company common stock subject to the Option shall be determined by dividing $7,500,000 by the per share Black-Scholes valuation as of the grant date, utilizing the same assumptions that the Company uses in the preparation of its financial statements. The grant date of the Option shall be the date on which the determination of the price per share of the Companys Class A common stock in connection with IPO occurs (the IPO Price and, such date, the Pricing Date, which shall also be the Effective Date of this Agreement). Subject to Executives continued service with the Company through the applicable vesting date, the Option shall vest and become exercisable over a four-year period as follows: one-forty-eighth (1/48th) of the shares of the Companys common stock underlying the Option shall vest and become exercisable on each monthly anniversary of the Effective Date.
(iv) The number of shares of Company common stock subject to the RSU Award shall be determined by dividing $2,500,000 by the IPO Price. The RSU Award shall be granted on the date on which the Companys Registration Statement on Form S-8 registering the shares subject to the RSU Award becomes effective. Subject to Executives continued service with the Company through the applicable vesting date, the RSU Award shall vest over a four-year period as follows: one-sixteenth (1/16th) of the RSU Award shall vest on each quarterly anniversary of the Effective Date, so that the RSU Award shall be vested in full as of the fourth (4th) anniversary of the Effective Date.
(v) The terms and conditions of the Option and RSU Award shall be set forth in a stock option award agreement and restricted stock unit award agreement, respectively, in forms prescribed by the Company, to be entered into by Executive and the Company (the Award Agreements). Except as otherwise specifically provided in this Agreement, each Award shall be governed in all respects by the terms of and conditions of the Plan and the applicable Award Agreement.
(vi) Notwithstanding the foregoing, upon a Change in Control, Executive will be entitled to 100% vesting acceleration of all then-unvested shares subject to the Existing Equity Awards. Notwithstanding anything to the contrary in this Agreement or any other agreement, for purposes of this Section 3(e)(vi), Change in Control for any Existing Equity Award shall have the meaning set forth in the Companys 2016 Equity Incentive Plan.
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4. TERM; EFFECT OF TERMINATION OF EMPLOYMENT.
(a) The parties acknowledge that Executive has been an employee of the Company prior to the date of this Agreement and that Executives at-will employment under this Agreement shall commence on the Effective Date. In the event that the Effective Date does not occur, this Agreement shall have no force or effect, and the Prior Agreement shall remain in effect, notwithstanding anything herein to the contrary. The Term of this Agreement shall commence on the Effective Date and continue until the fifth (5th) anniversary of the Effective Date, unless earlier terminated pursuant to this Section 4 (the Term). Following the natural expiration of the Term, Executive shall continue as an at-will employee of the Company. Executives post-termination obligations pursuant to Sections 5-8 and 10(d) of this Agreement (Continuing Obligations) shall survive the expiration/termination of this Agreement and/or Executives employment, however caused. The Companys obligations under Section 7 shall survive the expiration/termination of this Agreement and/or Executives employment, however caused.
(b) If Executives employment is terminated by the Company for Cause or by Executive without Good Reason, Executive shall not be entitled to receive any compensation, salary, severance, bonus or other similar payments, except for payments of Base Salary and other earned compensation and benefits, in each case through the date of termination, and the Company shall have no further obligation to Executive or liability under this Agreement by way of compensation or otherwise.
(c) If Executives employment is terminated due to her death or Disability, she will receive 100% vesting acceleration of all then-unvested shares subject to the Awards.
(d) If, during the Term, Executives employment is terminated by the Company without Cause or by Executive for Good Reason other than during a Change in Control Period (as defined below), then Executive shall be entitled to, in addition to payments of Base Salary and other benefits accrued, in each case through the date of termination:
(i) continued payment of Base Salary for twenty-four (24) months in accordance with the Companys standard payroll procedures, which payments will commence no later than the first regular payroll date occurring after the sixtieth (60th) day following the date of termination (the Severance Payments) and, once they commence, will include any unpaid amounts accrued from the date of termination; provided, that if the sixty (60)-day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year. For purposes of Section 4, if Executive is entitled to Severance Payments due to a termination for Good Reason resulting from a material reduction of her Base Salary, the Severance Payments will be calculated based on the pre-reduction Base Salary;
(ii) 100% vesting acceleration of all then-unvested shares subject to the Awards (the Termination Vesting Acceleration); and
(iii) regardless of whether she elects continuation coverage, a lump-sum cash payment in an amount equal to 200% of the cost of eighteen (18) months of COBRA medical continuation premiums (based on Executives elections in effect as of immediately prior to such termination), paid in a lump-sum within thirty (30) days following the date of termination (the Additional Payment).
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(e) If, during the Term, Executives employment is terminated by the Company without Cause or by Executive for Good Reason during the time period commencing three (3) months before the effective date of a Change in Control and ending on the date that is twelve (12) months after the effective date of a Change in Control (the Change in Control Period), then Executive shall be entitled to, in addition to payments of Base Salary and other benefits accrued, in each case through the date of termination:
(i) the same payments and benefits set forth in Section 4(c)
(ii) an amount equal to Executives Annual Bonus target for the year in which the termination occurs, pro-rated based on the number of days during which Executive provided services to the Company during such year (the Pro-Rated Bonus), payable within 30 days following the date of termination; and
(iii) An amount equal to 200% of Executives Annual Bonus target for the year in which the termination occurs, payable within 30 days following the date of termination.
For the avoidance of doubt, the Change in Control Period, and the Companys obligation to provide the payments and benefits set forth in this Section 4(d), shall extend for a period of twelve (12) calendar months beginning on the date of the Change in Control, and shall continue irrespective of whether the Term naturally terminates during the Change in Control Period.
(f) Notwithstanding anything to the contrary in this Section 4, Executive will be entitled to the benefits outlined in Sections 4(d)(i)-(iii) and Sections 4(e)(i)-(iii) (as applicable) in the event she is terminated by the Company without Cause or terminates her employment for Good Reason, in each case only if she executes, delivers and does not revoke a general waiver and release of all claims against the Company and any parent, subsidiary and affiliate thereof in a form substantially similar to Exhibit A hereto (the Release) and such Release shall have become effective by its terms prior to the sixtieth (60th) day following the termination date, and with respect to any continuing payments has not been found to be in breach of her Continuing Obligations as of the date of a payment.
5. CONFIDENTIAL INFORMATION AND OTHER COMPANY POLICIES.
(a) Executive acknowledges that she remains bound by and in compliance with the terms and conditions of that Employee Confidential Information and Inventions Assignment Agreement entered into by and between Executive and the Company on January 28, 2013. Executive agrees to be bound by and comply fully with any other policies and programs adopted by the Company regulating the behavior of its employees, as such policies and programs may be amended from time to time to the extent the same are not inconsistent with this Agreement.
(b) In addition, in accordance with the Defend Trade Secrets Act of 2016, the Company notifies Executive that federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential
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circumstances. Specifically, federal law provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret under either of the following conditions: (1) where the disclosure is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (2) where the disclosure is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. See 18 U.S.C. § 1833(b)(1). Federal law also provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order. See 18 U.S.C. § 1833(b)(2).
(c) Notwithstanding anything in this Agreement to the contrary, nothing contained in this Agreement shall prohibit either party (or either partys attorney(s)) from (i) filing a charge with, reporting possible violations of federal law or regulation to, participating in any investigation by, or cooperating with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the U.S. Commodity Futures Trading Commission, the U.S. Department of Justice or any other securities regulatory agency, self-regulatory authority or federal, state or local regulatory authority (collectively, Government Agencies), or making other disclosures that are protected under the whistleblower provisions of applicable law or regulation, (ii) communicating directly with, cooperating with, or providing information (including trade secrets) in confidence to any Government Agencies for the purpose of reporting or investigating a suspected violation of law, or from providing such information to such partys attorney(s) or in a sealed complaint or other document filed in a lawsuit or other governmental proceeding, and/or (iii) receiving an award for information provided to any Government Agency.
6. NON-SOLICITATION. During the Term and for one (1) year after the termination of Executives employment with the Company, Executive will not use the Companys confidential information, directly or indirectly (including through any agent, estates, trustee, family members or other representatives, including attorneys, accountants, consultants, bankers and financial advisors, of Executive or any other person) to induce, attempt to induce, solicit or attempt to solicit any employee of the Company or any subsidiary to leave his or her employment, consulting or independent contractor relationship with the Company or such subsidiary; provided, however, that, Executive shall not be precluded from hiring, retaining, employing or otherwise engaging any such individual who responds to any public advertisement not specifically targeted at such individual. In the event that Executives employment is terminated by the Company without Cause or by Executive for Good Reason during the Change in Control Period, the post-termination non-solicitation restrictions of this Section 6 shall not be a Continuing Obligation and shall be rendered null and void with no effect, provided that Executive executes the Release and has not been found to be in breach of the remaining Continuing Obligations as of the date of each such payment.
7. MUTUAL NON-DISPARAGEMENT. During the Term and thereafter, Executive shall not make to any person or entity, including but not limited to competitors,
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customers or vendors of the Company or any subsidiary or affiliated entity, any statement that disparages, discredits, or defames the Company, including but not limited to disparaging, discrediting or defamatory statements regarding the Companys financial condition, the Companys products, or the directors, officers, managers, and employees of the Company. During the Term and thereafter, the Company shall not make any statement that disparages, discredits, or defames Executive to any person or entity, including but not limited to competitors, customers or vendors of the Company or any subsidiary or affiliated entity, and the Company shall instruct its respective officers and directors to not disparage, discredit or defame Executive to any person or entity; provided, that, this Section 7 shall not in any way preclude Executive and the Board or officers from engaging, during the Term, in performance reviews or other discourse relating to Executives performance, or otherwise discussing or conducting the business of the Company in the ordinary course. Notwithstanding the foregoing, nothing in this Section 7 shall preclude Executive or the Company from making truthful statements required by applicable law, regulation or legal process, or in connection with any formal action to enforce their respective rights under this Agreement, as applicable.
8. ENFORCEMENT/REMEDIES.
(a) Arbitration. Executive acknowledges that she remains bound by and in compliance with the terms and conditions of that Arbitration Agreement entered into by and between Executive and the Company, attached hereto as Exhibit B (the Arbitration Agreement).
(b) Equitable Relief. The agreement to arbitrate set forth in Section 8(a) does not prohibit either party from filing an application for a provisional remedy or equitable relief to prevent actual or threatened irreparable harm in accordance with California law, including for breach or threatened breach of Sections 5 through 8 of this Agreement.
9. DEFINITIONS. As used in this Agreement, the following terms have the following meanings:
(a) Cause means one or more of the following events, as determined by the majority of disinterested members of the Board: (i) Executives commission of theft, embezzlement, fraud, dishonesty, misappropriation, or similar conduct against the Company, any subsidiary or any affiliated entity; (ii) Executives conviction for, or entry of a plea of guilty or nolo contendere to, a felony or a crime involving moral turpitude; or (iii) Executives gross negligence or willful or intentional misconduct in the performance of Executives duties.
(b) Change in Control shall have the meaning set forth in the Plan.
(c) Disability means Executives inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(d) Good Reason means the occurrence of any of the following events without Executives consent: (i) any material reduction in Executives authority, responsibilities
7
or duties; (ii) a relocation of her business office to a location more than twenty-five (25) miles from the location at which Executive performed her duties immediately prior to the relocation; (iii) the Companys material breach of any of its obligations under this Agreement; or (iv) a material reduction in Executives then-Base Salary; provided, however, that any such termination by Executive shall only be deemed for Good Reason pursuant to this definition if: (A) Executive gives the Company written notice, within ninety (90) days following the first occurrence of the condition(s) that Executive believes constitute(s) Good Reason, which notice shall describe such condition(s), of Executives intent to terminate for Good Reason; (B) the Company fails to remedy such condition(s) within thirty (30) days following receipt of such written notice (such 30-day period, the Cure Period); and (C) Executive voluntarily terminates her employment within thirty (30) days following the end of the Cure Period.
10. GENERAL.
(a) Severability. Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any part, clause, or condition of this Agreement is held to be partially or wholly invalid, unenforceable, or inoperative for any reason whatsoever, such invalid provision shall not affect any other provision or portion hereof, which shall continue to be effective as though such invalid, unenforceable or inoperative part, clause or condition had not been made.
(b) Representations and Warranties. Executive represents and warrants that: (i) Executives employment with the Company does not and will not breach any agreements with or duties to any third party; (ii) Executive has no obligations or commitments inconsistent with the terms of this Agreement; and (iii) Executive will not enter into any agreement or engage in any activity which would conflict with this Agreement or which would otherwise materially interfere with Executives duties hereunder.
(c) Survival of Obligations. Termination of Executives employment, however caused, shall not affect Executives Continuing Obligations. Executive agrees that after leaving the employ of the Company for any reason, whether initiated by Executive or the Company, the Company may notify Executives new employer about the Continuing Obligations.
(d) Cooperation. Following Executives termination of employment, if requested by the Company, Executive agrees to cooperate in good faith with the Company in connection with any defense, prosecution or investigation by the Company including regarding any internal investigation, actual or potential litigation, administrative or regulatory proceeding, or other such like proceeding, in which the Company may be involved as a party or non-party from time to time (other than any dispute between the Company and Executive), including without limitation, Executive being available to the Company upon reasonable notice for interviews and factual investigations, Executive appearing at the Companys reasonable request to give testimony without requiring service of a subpoena or other legal process, and Executive providing the Company all pertinent information and documents, at reasonable times and pursuant to reasonable schedules. The Company shall reimburse Executive for the reasonable, documented out-of-pocket expenses incurred by Executive in connection with such cooperation.
8
(e) Notices. Any notice, request, instruction, or other document to be given hereunder by any party to any other party shall be in writing and shall be delivered personally, by overnight delivery service or by email, and shall be deemed given: (i) if delivered by hand, when delivered, (ii) if delivered by overnight delivery, one (1) business day after deposited with a nationally recognized overnight delivery service, and (iii) if sent by email, upon electronic confirmation of receipt, as follows:
If to the Company, to:
FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
Attention: Chief Legal Officer
Email: legal@wearfigs.com
if to Executive, to:
At Executives most recent address on the records of the Company Email: [personal email address]1
(f) Waivers/Construction. Unless otherwise set forth in this Agreement, no delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
(g) Successors and Assigns; Assignment; Third Party Beneficiary. Executive shall not assign this Agreement and any attempt by Executive to do so will be deemed null and void, provided that Executives rights to payments hereunder shall, upon Executives death or incapacity, inure to the benefit of Executives personal or legal representatives, executors, administrators, heirs, devisees and legatees. This Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns. This Agreement may be assigned by the Company to any of its affiliates, or to a person or entity which is a successor in interest to substantially all of the business operations or assets of the Company.
1 |
NTD: To be redacted from public filings. |
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(h) Entire Agreement; No Oral Modification; Amendment. This Agreement contains the entire understanding of the parties with respect to the terms and conditions of Executives employment with the Company, and supersedes any and all prior and contemporaneous agreements, negotiations, term sheets and understandings relating to Executives employment with the Company (including the Prior Agreement, except as expressly set forth herein). The Existing Equity Awards will continue on their existing terms, except as expressly set forth in this Agreement, and the Founders Cash Sale Bonus Letter Agreement shall continue on its existing terms. This Agreement cannot be amended or modified except pursuant to a written instrument signed by Executive and an authorized signatory of the Company and approved by a majority of the members of the Board other than you. This Agreements terms may not be altered, modified, or amended in a manner detrimental to Executive except by a written instrument signed by the Executive that specifically references this Section 10(h).
(i) Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of California without giving effect to its conflicts or choice of law principles unless otherwise set forth herein.
(j) Executive Acknowledgment/No Inducements. Executive acknowledges that she has had the opportunity to consult with legal counsel and/or a tax advisor of Executives own choosing in regard to this Agreement, and that Executive has read and understands this Agreement. Executive has entered into this Agreement with the Company knowingly and voluntarily, based on Executives own judgment and not on any representations, inducements or promises other than those contained in this Agreement.
(k) Section Headings. The section and subsection headings of this Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions.
(l) Counterparts. This Agreement may be executed by electronically and/or in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11. 409A.
(a) Compliance. It is intended that the compensation paid or delivered to Executive pursuant to this Agreement is either paid in compliance with to avoid the application of an accelerated or additional tax under, or is exempt from, Section 409A of the Internal Revenue Code of 1986 (the Code), and the regulations promulgated thereunder (together, Section 409A), and this Agreement shall be interpreted and administered accordingly. However, the Company does not warrant to Executive that all amounts paid or delivered to her will be exempt from, or paid in compliance with, Section 409A. Executive understands and agrees that Executive bears the entire risk of any adverse federal, state or local tax consequences and penalty taxes which may result from payment on a basis contrary to the provisions of Section 409A or comparable provisions of any applicable state or local income tax laws. Executive acknowledges that she has been advised to seek the advice of a tax advisor with respect to the tax consequences of all payments pursuant to this Agreement, including any adverse tax consequence under Section 409A and applicable state tax law. If any payments of money or other benefits due to Executive
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hereunder could cause the application of an accelerated or additional tax under Section 409A, the Company (subject to the consent of the majority of the disinterested members of the Board) and Executive may (i) adopt such amendments to this Agreement, including amendments with retroactive effect, that the Company and Executive agree are necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Agreement and/or (ii) take such other actions as the Company and Executive determine are necessary or appropriate to comply with the requirements of Section 409A. For purposes of Section 409A, each payment hereunder will be deemed to be a separate payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).
(b) Amounts Payable On Account of Termination. If and to the extent necessary to comply with Section 409A, for the purposes of determining when amounts otherwise payable on account of Executives termination of employment under this Agreement will be paid, terminate, terminated or termination or words of similar import relating to Executives employment with the Company, as used in this Agreement, shall be construed as the date that Executive first incurs a separation from service within the meaning of Section 409A from the Company. Further, to the extent any payment or benefit provided under this Agreement is deemed to be nonqualified deferred compensation that is subject to Section 409A, and if the Company determines that Executive is a specified employee under Section 409A(a)(2)(B)(i) of the Code at the time of Executives separation from service within the meaning of Section 409A, then any such payment(s), to the extent they are subject to Section 409A, shall not be made or commence until the earlier of (i) the expiration of the six (6) month period measured from the date of Executives separation from service within the meaning of Section 409A and (ii) the date of Executives death following such separation from service.
(c) Interpretative Rules. In applying Section 409A to amounts paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.
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Exhibit A
Form of Release
In consideration of the payments to be made to me pursuant to Section 4 of my Agreement with FIGS, Inc. (with any successor thereof, the Company) dated May [__], 2021 (the Agreement) (such payments, the Benefits) and in connection with the termination of my employment, I agree to the following general release (the Release).
1. |
On behalf of myself, my heirs, executors, administrators, successors, and assigns, I hereby fully and forever generally release and discharge the Company, its current, former and future parents, subsidiaries, affiliated companies, related entities, employee benefit plans, and, in such capacities, their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees and assigns (collectively, the Released Parties) from any and all claims, causes of action, and liabilities up through the date of my execution of the Release. The claims subject to this release include, but are not limited to, those relating to my employment with the Company and/or any predecessor to Company and the termination of such employment. All such claims (including related attorneys fees and costs) are barred without regard to whether those claims are based on any alleged breach of a duty arising in statute, contract, or tort. This expressly includes my waiver and release of any rights and claims arising under any and all laws, rules, regulations, and ordinances, including, but not limited to: Title VII of the Civil Rights Act of 1964; the Older Workers Benefit Protection Act; the Americans With Disabilities Act; [the Age Discrimination in Employment Act (ADEA)];2 the Fair Labor Standards Act; the National Labor Relations Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974, as amended (ERISA); the Workers Adjustment and Retraining Notification Act; the California Fair Employment and Housing Act (if applicable); the provisions of the California Labor Code (if applicable); the Equal Pay Act of 1963; and any similar law of any other state or governmental entity. The parties agree to apply California law in interpreting the Release. Accordingly, I further waive any rights under Section 1542 of the Civil Code of the State of California or any similar state statute. Section 1542 states: A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. This Release does not extend to, and has no effect upon, any benefits that have accrued or equity that has vested, and to which I have become vested or otherwise entitled to, under any employee benefit plan, program or policy sponsored or maintained by the Company, or to my right to indemnification by the Company, and continued coverage by the Companys directors and officers insurance. |
2. |
In understanding the terms of the Release and my rights, I have been advised to consult with an attorney of my choice prior to executing the Release. I understand that nothing in the Release shall prohibit me from exercising legal rights that are, as a matter of law, not subject to waiver such as: (a) my rights under applicable workers compensation laws; |
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(b) my right, if any, to seek unemployment benefits; (c) my right to indemnity under California Labor Code section 2802 or other applicable state-law right to indemnity; (d) my right to file a charge or complaint with a government agency such as but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the Department of Labor, the California Department of Fair Employment and Housing, or other applicable state agency; and (e) my right to report any violation to the Securities and Exchange Commission or any other federal or state agency. I further understand that nothing in this Release precludes me from entitlement to any monetary recovery awarded by the Securities and Exchange Commission in connection with any action asserted by the Securities and Exchange Commission. Moreover, I will continue to be indemnified for my actions taken while employed by the Company to the same extent as other former directors and officers of the Company under the Companys Certificate of Incorporation and Bylaws and the Indemnification Agreement between me and the Company, and I will continue to be covered by the Companys directors and officers liability insurance policy as in effect from time to time to the same extent as other former directors and officers of the Company, each subject to the requirements of the laws of the State of Delaware. To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be resolved through binding arbitration as set forth in my Agreement.
3. |
I understand and agree that the Company will not provide me with the Benefits unless I execute the Release. I also understand that I have received or will receive, regardless of the execution of the Release, all wages owed to me together with any accrued but unused vacation pay, less applicable withholdings and deductions, earned through my termination date. |
4. |
As part of my existing and continuing obligations to the Company, I have returned to the Company all Company documents (and all copies thereof) and other Company property that I have had in my possession at any time, including but not limited to Company files, notes, drawings, records, business plans and forecasts, financial information, specification, computer-recorded information, tangible property (including, but not limited to, computers, laptops, pagers, etc.), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof) except that I may keep my personal copies of (i) my compensation records and (ii) materials distributed to stockholders generally. I understand that, even if I did not sign the Release, I am still bound by any and all confidential/proprietary/trade secret information, non-disclosure and inventions assignment agreement(s) signed by me in connection with my employment with the Company, or with a predecessor or successor of the Company pursuant to the terms of such agreement(s). |
5. |
I represent and warrant that I am the sole owner of all claims relating to my employment with the Company and/or with any predecessor of the Company, and that I have not assigned or transferred any claims relating to my employment to any other person or entity. |
2 |
To include if Executive is over 40. |
6. |
Section 5(b)(c) of the Agreement is hereby incorporated herein by reference, and shall apply, together with any necessary conforming changes, to the provisions set forth herein. |
7. |
I understand and agree that nothing in the Release shall be interpreted or enforced in a manner that would interfere with my rights under the National Labor Relations Act, if any, to discuss or comment on the terms and conditions of my employment. |
8. |
I understand and agree that the Release shall not be construed at any time as an admission of liability or wrongdoing by either any Released Party or myself. |
9. |
[I understand and acknowledge that through the Release, I will be releasing the Released Parties from any and all claims I may have against them, including those under the ADEA, except as specified in the Release.]3 |
10. |
[I agree that I have had at least twenty-one (21) calendar days in which to consider whether to execute the Release, no one hurried me into executing the Release during that period, and no one coerced me into executing the Release. I understand that the offer of the Benefits and the Release shall expire on the twenty-second (22nd) calendar day after my employment termination date if I have not accepted it by that time. I further understand that the Companys obligations under the Release shall not become effective or enforceable until the eighth (8th) calendar day after the date I sign the Release provided that I have timely delivered it to Company (the Effective Date) and I understand that I may revoke my acceptance of the Release in the seven (7) day period following the date I deliver a signed copy of the Release to Company. I understand that the Benefits will become available to me at such time after the Effective Date.]4 |
11. |
In executing the Release, I acknowledge that I have not relied upon any statement made by the Company, or any of its representatives or employees, with regard to the Release unless the representation is specifically included herein. Furthermore, the Release contains our entire understanding regarding eligibility for Benefits (except as otherwise set forth in the Agreement) and supersedes any or all prior representation and agreement regarding the subject matter of the Release. However, the Release does not modify, amend or supersede written Company agreements that are consistent with enforceable provisions of this Release such as my Agreement, proprietary information and invention assignment agreement, and any stock, stock option and/or stock purchase agreements between Company and me. Once effective and enforceable, this agreement can only be changed by another written agreement signed by me and an authorized representative of the Company. |
12. |
Should any provision of the Release be determined by an arbitrator, court of competent jurisdiction, or government agency to be wholly or partially invalid or unenforceable, the legality, validity and enforceability of the remaining parts, terms, or provisions are intended to remain in full force and effect. Specifically, should a court, arbitrator, or |
3 |
To include if Executive is over 40. |
4 |
To include if Executive is over 40. |
agency conclude that a particular claim may not be released as a matter of law, it is the intention of the parties that the general release and the waiver of unknown claims above shall otherwise remain effective to release any and all other claims. I acknowledge that I have obtained sufficient information to intelligently exercise my own judgment regarding the terms of the Release before executing the Release. |
[SIGNATURE PAGE TO GENERAL RELEASE AGREEMENT FOLLOWS]
EMPLOYEES ACCEPTANCE OF RELEASE
BEFORE SIGNING MY NAME TO THE RELEASE, I STATE THE FOLLOWING: I HAVE READ THE RELEASE, I UNDERSTAND IT AND I KNOW THAT I AM GIVING UP IMPORTANT RIGHTS. I HAVE OBTAINED SUFFICIENT INFORMATION TO INTELLIGENTLY EXERCISE MY OWN JUDGMENT. I HAVE BEEN ADVISED THAT I SHOULD CONSULT WITH AN ATTORNEY BEFORE SIGNING IT, AND I HAVE SIGNED THE RELEASE KNOWINGLY AND VOLUNTARILY.
Date delivered to employee ___________, ______. | ||
Executed this ___________ day of ___________, ______.
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||
Your Signature
|
||
Your Name (Please Print) |
Agreed and Accepted: |
FIGS, Inc. |
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By: |
Date: |
Exhibit B
Arbitration Agreement
See attached.
Exhibit 10.12
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (Agreement) is entered into as of May [], 2021, by and between FIGS, Inc. (the Company), and Catherine Spear (Executive). The Company and Executive are referred to herein as the parties.
RECITALS
WHEREAS, the Company and Executive previously entered into that certain Employment Agreement, dated as of October 20, 2017 and amended as of September 16, 2020 (the Prior Agreement), pursuant to which Executive has been employed by the Company as its Co-Chief Executive Officer; and
WHEREAS, the Company and Executive desire to amend and restate the Prior Agreement in its entirety on the terms and conditions set forth herein, effective as of the Effective Date (as defined below).
NOW, THEREFORE, in consideration of the promises and obligations set forth below and for other good and valuable consideration, the receipt of which is hereby acknowledged by the parties, the Company and Executive agree and intend to be legally bound, as follows:
AGREEMENT
1. POSITION AND DUTIES. The Company agrees to continue to employ Executive during the Term as the Co-Chief Executive Officer of the Company. As Co-Chief Executive Officer, Executive will report to the Companys Board of Directors (the Board) and will have all of the duties, responsibilities and authority commensurate with the position.
2. OBLIGATIONS TO THE COMPANY. Executive shall not, directly or indirectly, (a) engage or participate in any outside activity that would, or would reasonably be expected to, conflict with the best interests of the Company or Executives duties to the Company, or (b) provide services to or invest in any corporation or other entity that competes or intends to compete with the business of the Company. Nothing herein shall prohibit Executive from participating in any outside activity, provided that, (i) such activity shall be reasonably limited by Executive so as not to interfere with the performance of her duties and responsibilities hereunder and (ii) such activity is approved by the Board.
3. COMPENSATION AND BENEFITS.
(a) Base Salary. During the Term, the Company shall pay Executive an annualized base salary in the amount of $1,000,000 (the Base Salary), paid in approximately equal installments in accordance with the Companys normal payroll practices.
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(b) Bonus. Executive will also be eligible to earn an annual discretionary bonus (the Annual Bonus) targeted at an amount equal to 100% of Executives Base Salary, which may be earned in an amount up to a maximum of 200% of Executives Base Salary (if maximum performance goals are achieved). For clarity, Executives Annual Bonus target for calendar year 2021 shall be based solely on Executives Base Salary as of the Effective Date (i.e., $1,000,000). The amount of the Annual Bonus will be determined in the sole discretion of the Compensation Committee of the Board (Compensation Committee) and based, in part, on Executives performance and the performance of the Company during the calendar year, as well as any other criteria the Compensation Committee deems relevant. The Company will pay Executive the Annual Bonus, if any, no later than March 15th of the calendar year following the year in which the Annual Bonus is earned. Except as otherwise provided in Section 4(d), the Annual Bonus is not earned until paid and no pro-rated amount will be paid if Executives employment terminates for any reason prior to the payment date.
(c) Benefits. During the Term, while Executive is employed by the Company, Executive (and her spouse and dependents, as applicable) shall, subject to and in accordance with the terms of the applicable plan documents and all applicable laws, be entitled to participate in the health, welfare, retirement, vacation and other employee benefit plans, practices, policies and programs generally available to other senior executives of the Company, as may be in effect from time to time (the Benefit Plans), subject in each case to the generally applicable terms and conditions of the Benefit Plan in question and to the determinations of any person or committee administering such Benefit Plan. To the extent that Executive is required to make filing(s) under the Hart-Scott-Rodino Act with respect to the acquisition of Company securities, the Company will pay the filing and legal fees associated with such filings.
(d) Expenses. During the Term, Executive shall be eligible for prompt reimbursement for business expenses reasonably and actually incurred and properly documented by Executive in accordance with the policies of the Company as may be in effect from time to time.
(e) Equity Awards.
(i) The parties agree and acknowledge that the Company previously granted to Executive the following equity awards that remain outstanding as of the Effective Date: stock option granted February 22, 2018; stock option granted June 27, 2018, restricted stock units granted June 26, 2020, and stock option granted September 16, 2020 (the Existing Equity Awards).
(ii) The Company shall grant, subject to Executives continued employment through the applicable grant date, to Executive equity-based compensation awards pursuant to the Companys 2021 Equity Incentive Plan (the Plan). Of such awards, 75% shall be granted in the form of a stock option (the Option) and the remaining 25% shall be granted in the form of a restricted stock unit award (the RSU Award and, together with the Existing Equity Awards, the Option, and any future equity awards granted to Executive, the Awards).
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(iii) The Option shall be a nonqualified stock option, shall have an exercise price per share equal to the fair market value of the Companys common stock on the applicable grant date, and shall have a maximum term of ten years from the applicable grant date. The number of shares of Company common stock subject to the Option shall be determined by dividing $7,500,000 by the per share Black-Scholes valuation as of the grant date, utilizing the same assumptions that the Company uses in the preparation of its financial statements. The grant date of the Option shall be the date on which the determination of the price per share of the Companys Class A common stock in connection with the initial public offering (the IPO) of the Companys Class A common stock occurs (the IPO Price and, such date, the Pricing Date, which shall also be the Effective Date of this Agreement). Subject to Executives continued service with the Company through the applicable vesting date, the Option shall vest and become exercisable over a four-year period as follows: one-forty-eighth (1/48th) of the shares of the Companys common stock underlying the Option shall vest and become exercisable on each monthly anniversary of the Effective Date.
(iv) The number of shares of Company common stock subject to the RSU Award shall be determined by dividing $2,500,000 by the IPO Price. The RSU Award shall be granted on the date on which the Companys Registration Statement on Form S-8 registering the shares subject to the RSU Award becomes effective. Subject to Executives continued service with the Company through the applicable vesting date, the RSU Award shall vest over a four-year period as follows: one-sixteenth (1/16th) of the RSU Award shall vest on each quarterly anniversary of the Effective Date, so that the RSU Award shall be vested in full as of the fourth (4th) anniversary of the Effective Date.
(v) The terms and conditions of the Option and RSU Award shall be set forth in a stock option award agreement and restricted stock unit award agreement, respectively, in forms prescribed by the Company, to be entered into by Executive and the Company (the Award Agreements). Except as otherwise specifically provided in this Agreement, each Award shall be governed in all respects by the terms of and conditions of the Plan and the applicable Award Agreement.
(vi) Notwithstanding the foregoing, upon a Change in Control, Executive will be entitled to 100% vesting acceleration of all then-unvested shares subject to the Existing Equity Awards. Notwithstanding anything to the contrary in this Agreement or any other agreement, for purposes of this Section 3(e)(vi), Change in Control for any Existing Equity Award shall have the meaning set forth in the Companys 2016 Equity Incentive Plan.
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4. TERM; EFFECT OF TERMINATION OF EMPLOYMENT.
(a) The parties acknowledge that Executive has been an employee of the Company prior to the date of this Agreement and that Executives at-will employment under this Agreement shall commence on the Effective Date. In the event that the Effective Date does not occur, this Agreement shall have no force or effect, and the Prior Agreement shall remain in effect, notwithstanding anything herein to the contrary. The Term of this Agreement shall commence on the Effective Date and continue until the fifth (5th) anniversary of the Effective Date, unless earlier terminated pursuant to this Section 4 (the Term). Following the natural expiration of the Term, Executive shall continue as an at-will employee of the Company. Executives post-termination obligations pursuant to Sections 5-8 and 10(d) of this Agreement (Continuing Obligations) shall survive the expiration/termination of this Agreement and/or Executives employment, however caused. The Companys obligations under Section 7 shall survive the expiration/termination of this Agreement and/or Executives employment, however caused.
(b) If Executives employment is terminated by the Company for Cause or by Executive without Good Reason, Executive shall not be entitled to receive any compensation, salary, severance, bonus or other similar payments, except for payments of Base Salary and other earned compensation and benefits, in each case through the date of termination, and the Company shall have no further obligation to Executive or liability under this Agreement by way of compensation or otherwise.
(c) If Executives employment is terminated due to her death or Disability, she will receive 100% vesting acceleration of all then-unvested shares subject to the Awards.
(d) If, during the Term, Executives employment is terminated by the Company without Cause or by Executive for Good Reason other than during a Change in Control Period (as defined below), then Executive shall be entitled to, in addition to payments of Base Salary and other benefits accrued, in each case through the date of termination:
(i) continued payment of Base Salary for twenty-four (24) months in accordance with the Companys standard payroll procedures, which payments will commence no later than the first regular payroll date occurring after the sixtieth (60th) day following the date of termination (the Severance Payments) and, once they commence, will include any unpaid amounts accrued from the date of termination; provided, that if the sixty (60)-day period described in the preceding sentence spans two calendar years, then the payments will in any event begin in the second calendar year. For purposes of Section 4, if Executive is entitled to Severance Payments due to a termination for Good Reason resulting from a material reduction of her Base Salary, the Severance Payments will be calculated based on the pre-reduction Base Salary;
(ii) 100% vesting acceleration of all then-unvested shares subject to the Awards (the Termination Vesting Acceleration); and
(iii) regardless of whether she elects continuation coverage, a lump-sum cash payment in an amount equal to 200% of the cost of eighteen (18) months of COBRA medical continuation premiums (based on Executives elections in effect as of immediately prior to such termination), paid in a lump-sum within thirty (30) days following the date of termination (the Additional Payment).
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(e) If, during the Term, Executives employment is terminated by the Company without Cause or by Executive for Good Reason during the time period commencing three (3) months before the effective date of a Change in Control and ending on the date that is twelve (12) months after the effective date of a Change in Control (the Change in Control Period), then Executive shall be entitled to, in addition to payments of Base Salary and other benefits accrued, in each case through the date of termination:
(i) the same payments and benefits set forth in Section 4(c)
(ii) an amount equal to Executives Annual Bonus target for the year in which the termination occurs, pro-rated based on the number of days during which Executive provided services to the Company during such year (the Pro-Rated Bonus), payable within 30 days following the date of termination; and
(iii) An amount equal to 200% of Executives Annual Bonus target for the year in which the termination occurs, payable within 30 days following the date of termination.
For the avoidance of doubt, the Change in Control Period, and the Companys obligation to provide the payments and benefits set forth in this Section 4(d), shall extend for a period of twelve (12) calendar months beginning on the date of the Change in Control, and shall continue irrespective of whether the Term naturally terminates during the Change in Control Period.
(f) Notwithstanding anything to the contrary in this Section 4, Executive will be entitled to the benefits outlined in Sections 4(d)(i)-(iii) and Sections 4(e)(i)-(iii) (as applicable) in the event she is terminated by the Company without Cause or terminates her employment for Good Reason, in each case only if she executes, delivers and does not revoke a general waiver and release of all claims against the Company and any parent, subsidiary and affiliate thereof in a form substantially similar to Exhibit A hereto (the Release) and such Release shall have become effective by its terms prior to the sixtieth (60th) day following the termination date, and with respect to any continuing payments has not been found to be in breach of her Continuing Obligations as of the date of a payment.
5. CONFIDENTIAL INFORMATION AND OTHER COMPANY POLICIES.
(a) Executive acknowledges that she remains bound by and in compliance with the terms and conditions of that Employee Confidential Information and Inventions Assignment Agreement entered into by and between Executive and the Company on January 28, 2013. Executive agrees to be bound by and comply fully with any other policies and programs adopted by the Company regulating the behavior of its employees, as such policies and programs may be amended from time to time to the extent the same are not inconsistent with this Agreement.
(b) In addition, in accordance with the Defend Trade Secrets Act of 2016, the Company notifies Executive that federal law provides certain protections to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances. Specifically, federal law provides that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret under either of the following conditions: (1) where the disclosure is made (i) in confidence to a Federal,
5
State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (2) where the disclosure is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. See 18 U.S.C. § 1833(b)(1). Federal law also provides that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order. See 18 U.S.C. § 1833(b)(2).
(c) Notwithstanding anything in this Agreement to the contrary, nothing contained in this Agreement shall prohibit either party (or either partys attorney(s)) from (i) filing a charge with, reporting possible violations of federal law or regulation to, participating in any investigation by, or cooperating with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the U.S. Commodity Futures Trading Commission, the U.S. Department of Justice or any other securities regulatory agency, self-regulatory authority or federal, state or local regulatory authority (collectively, Government Agencies), or making other disclosures that are protected under the whistleblower provisions of applicable law or regulation, (ii) communicating directly with, cooperating with, or providing information (including trade secrets) in confidence to any Government Agencies for the purpose of reporting or investigating a suspected violation of law, or from providing such information to such partys attorney(s) or in a sealed complaint or other document filed in a lawsuit or other governmental proceeding, and/or (iii) receiving an award for information provided to any Government Agency.
6. NON-SOLICITATION. During the Term and for one (1) year after the termination of Executives employment with the Company, Executive will not use the Companys confidential information, directly or indirectly (including through any agent, estates, trustee, family members or other representatives, including attorneys, accountants, consultants, bankers and financial advisors, of Executive or any other person) to induce, attempt to induce, solicit or attempt to solicit any employee of the Company or any subsidiary to leave his or her employment, consulting or independent contractor relationship with the Company or such subsidiary; provided, however, that, Executive shall not be precluded from hiring, retaining, employing or otherwise engaging any such individual who responds to any public advertisement not specifically targeted at such individual. In the event that Executives employment is terminated by the Company without Cause or by Executive for Good Reason during the Change in Control Period, the post-termination non-solicitation restrictions of this Section 6 shall not be a Continuing Obligation and shall be rendered null and void with no effect, provided that Executive executes the Release and has not been found to be in breach of the remaining Continuing Obligations as of the date of each such payment.
7. MUTUAL NON-DISPARAGEMENT. During the Term and thereafter, Executive shall not make to any person or entity, including but not limited to competitors, customers or vendors of the Company or any subsidiary or affiliated entity, any statement that disparages, discredits, or defames the Company, including but not limited to disparaging, discrediting or defamatory statements regarding the Companys financial condition, the
6
Companys products, or the directors, officers, managers, and employees of the Company. During the Term and thereafter, the Company shall not make any statement that disparages, discredits, or defames Executive to any person or entity, including but not limited to competitors, customers or vendors of the Company or any subsidiary or affiliated entity, and the Company shall instruct its respective officers and directors to not disparage, discredit or defame Executive to any person or entity; provided, that, this Section 7 shall not in any way preclude Executive and the Board or officers from engaging, during the Term, in performance reviews or other discourse relating to Executives performance, or otherwise discussing or conducting the business of the Company in the ordinary course. Notwithstanding the foregoing, nothing in this Section 7 shall preclude Executive or the Company from making truthful statements required by applicable law, regulation or legal process, or in connection with any formal action to enforce their respective rights under this Agreement, as applicable.
8. ENFORCEMENT/REMEDIES.
(a) Arbitration. Executive acknowledges that she remains bound by and in compliance with the terms and conditions of that Arbitration Agreement entered into by and between Executive and the Company, attached hereto as Exhibit B (the Arbitration Agreement).
(b) Equitable Relief. The agreement to arbitrate set forth in Section 8(a) does not prohibit either party from filing an application for a provisional remedy or equitable relief to prevent actual or threatened irreparable harm in accordance with California law, including for breach or threatened breach of Sections 5 through 8 of this Agreement.
9. DEFINITIONS. As used in this Agreement, the following terms have the following meanings:
(a) Cause means one or more of the following events, as determined by the majority of disinterested members of the Board: (i) Executives commission of theft, embezzlement, fraud, dishonesty, misappropriation, or similar conduct against the Company, any subsidiary or any affiliated entity; (ii) Executives conviction for, or entry of a plea of guilty or nolo contendere to, a felony or a crime involving moral turpitude; or (iii) Executives gross negligence or willful or intentional misconduct in the performance of Executives duties.
(b) Change in Control shall have the meaning set forth in the Plan.
(c) Disability means Executives inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.
(d) Good Reason means the occurrence of any of the following events without Executives consent: (i) any material reduction in Executives authority, responsibilities or duties; (ii) a relocation of her business office to a location more than twenty-five (25) miles from the location at which Executive performed her duties immediately prior to the relocation; (iii) the Companys material breach of any of its obligations under this Agreement; or (iv) a material
7
reduction in Executives then-Base Salary; provided, however, that any such termination by Executive shall only be deemed for Good Reason pursuant to this definition if: (A) Executive gives the Company written notice, within ninety (90) days following the first occurrence of the condition(s) that Executive believes constitute(s) Good Reason, which notice shall describe such condition(s), of Executives intent to terminate for Good Reason; (B) the Company fails to remedy such condition(s) within thirty (30) days following receipt of such written notice (such 30-day period, the Cure Period); and (C) Executive voluntarily terminates her employment within thirty (30) days following the end of the Cure Period.
10. GENERAL.
(a) Severability. Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any part, clause, or condition of this Agreement is held to be partially or wholly invalid, unenforceable, or inoperative for any reason whatsoever, such invalid provision shall not affect any other provision or portion hereof, which shall continue to be effective as though such invalid, unenforceable or inoperative part, clause or condition had not been made.
(b) Representations and Warranties. Executive represents and warrants that: (i) Executives employment with the Company does not and will not breach any agreements with or duties to any third party; (ii) Executive has no obligations or commitments inconsistent with the terms of this Agreement; and (iii) Executive will not enter into any agreement or engage in any activity which would conflict with this Agreement or which would otherwise materially interfere with Executives duties hereunder.
(c) Survival of Obligations. Termination of Executives employment, however caused, shall not affect Executives Continuing Obligations. Executive agrees that after leaving the employ of the Company for any reason, whether initiated by Executive or the Company, the Company may notify Executives new employer about the Continuing Obligations.
(d) Cooperation. Following Executives termination of employment, if requested by the Company, Executive agrees to cooperate in good faith with the Company in connection with any defense, prosecution or investigation by the Company including regarding any internal investigation, actual or potential litigation, administrative or regulatory proceeding, or other such like proceeding, in which the Company may be involved as a party or non-party from time to time (other than any dispute between the Company and Executive), including without limitation, Executive being available to the Company upon reasonable notice for interviews and factual investigations, Executive appearing at the Companys reasonable request to give testimony without requiring service of a subpoena or other legal process, and Executive providing the Company all pertinent information and documents, at reasonable times and pursuant to reasonable schedules. The Company shall reimburse Executive for the reasonable, documented out-of-pocket expenses incurred by Executive in connection with such cooperation.
(e) Notices. Any notice, request, instruction, or other document to be given hereunder by any party to any other party shall be in writing and shall be delivered personally, by overnight delivery service or by email, and shall be deemed given: (i) if delivered by hand, when delivered, (ii) if delivered by overnight delivery, one (1) business day after deposited with a nationally recognized overnight delivery service, and (iii) if sent by email, upon electronic confirmation of receipt, as follows:
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If to the Company, to:
FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
Attention: Chief Legal Officer
Email: legal@wearfigs.com
if to Executive, to:
At Executives most recent address on the records of the Company
Email: [personal email address]1
(f) Waivers/Construction. Unless otherwise set forth in this Agreement, no delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
(g) Successors and Assigns; Assignment; Third Party Beneficiary. Executive shall not assign this Agreement and any attempt by Executive to do so will be deemed null and void, provided that Executives rights to payments hereunder shall, upon Executives death or incapacity, inure to the benefit of Executives personal or legal representatives, executors, administrators, heirs, devisees and legatees. This Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns. This Agreement may be assigned by the Company to any of its affiliates, or to a person or entity which is a successor in interest to substantially all of the business operations or assets of the Company.
1 |
NTD: To be redacted from public filings. |
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(h) Entire Agreement; No Oral Modification; Amendment. This Agreement contains the entire understanding of the parties with respect to the terms and conditions of Executives employment with the Company, and supersedes any and all prior and contemporaneous agreements, negotiations, term sheets and understandings relating to Executives employment with the Company (including the Prior Agreement, except as expressly set forth herein). The Existing Equity Awards will continue on their existing terms, except as expressly set forth in this Agreement, and the Founders Cash Sale Bonus Letter Agreement shall continue on its existing terms. This Agreement cannot be amended or modified except pursuant to a written instrument signed by Executive and an authorized signatory of the Company and approved by a majority of the members of the Board other than you. This Agreements terms may not be altered, modified, or amended in a manner detrimental to Executive except by a written instrument signed by the Executive that specifically references this Section 10(h).
(i) Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of California without giving effect to its conflicts or choice of law principles unless otherwise set forth herein.
(j) Executive Acknowledgment/No Inducements. Executive acknowledges that she has had the opportunity to consult with legal counsel and/or a tax advisor of Executives own choosing in regard to this Agreement, and that Executive has read and understands this Agreement. Executive has entered into this Agreement with the Company knowingly and voluntarily, based on Executives own judgment and not on any representations, inducements or promises other than those contained in this Agreement.
(k) Section Headings. The section and subsection headings of this Agreement are included for convenience only, and shall not affect the construction or interpretation of any of its provisions.
(l) Counterparts. This Agreement may be executed by electronically and/or in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
11. 409A.
(a) Compliance. It is intended that the compensation paid or delivered to Executive pursuant to this Agreement is either paid in compliance with to avoid the application of an accelerated or additional tax under, or is exempt from, Section 409A of the Internal Revenue Code of 1986 (the Code), and the regulations promulgated thereunder (together, Section 409A), and this Agreement shall be interpreted and administered accordingly. However, the Company does not warrant to Executive that all amounts paid or delivered to her will be exempt from, or paid in compliance with, Section 409A. Executive understands and agrees that Executive bears the entire risk of any adverse federal, state or local tax consequences and penalty taxes which may result from payment on a basis contrary to the provisions of Section 409A or comparable provisions of any applicable state or local income tax laws. Executive acknowledges that she has been advised to seek the advice of a tax advisor with respect to the tax consequences of all payments pursuant to this Agreement, including any adverse tax consequence under Section 409A and applicable state tax law. If any payments of money or other benefits due to Executive
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hereunder could cause the application of an accelerated or additional tax under Section 409A, the Company (subject to the consent of the majority of the disinterested members of the Board) and Executive may (i) adopt such amendments to this Agreement, including amendments with retroactive effect, that the Company and Executive agree are necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Agreement and/or (ii) take such other actions as the Company and Executive determine are necessary or appropriate to comply with the requirements of Section 409A. For purposes of Section 409A, each payment hereunder will be deemed to be a separate payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).
(b) Amounts Payable On Account of Termination. If and to the extent necessary to comply with Section 409A, for the purposes of determining when amounts otherwise payable on account of Executives termination of employment under this Agreement will be paid, terminate, terminated or termination or words of similar import relating to Executives employment with the Company, as used in this Agreement, shall be construed as the date that Executive first incurs a separation from service within the meaning of Section 409A from the Company. Further, to the extent any payment or benefit provided under this Agreement is deemed to be nonqualified deferred compensation that is subject to Section 409A, and if the Company determines that Executive is a specified employee under Section 409A(a)(2)(B)(i) of the Code at the time of Executives separation from service within the meaning of Section 409A, then any such payment(s), to the extent they are subject to Section 409A, shall not be made or commence until the earlier of (i) the expiration of the six (6) month period measured from the date of Executives separation from service within the meaning of Section 409A and (ii) the date of Executives death following such separation from service.
(c) Interpretative Rules. In applying Section 409A to amounts paid pursuant to this Agreement, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.
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Exhibit A
Form of Release
In consideration of the payments to be made to me pursuant to Section 4 of my Agreement with FIGS, Inc. (with any successor thereof, the Company) dated May [__], 2021 (the Agreement) (such payments, the Benefits) and in connection with the termination of my employment, I agree to the following general release (the Release).
1. |
On behalf of myself, my heirs, executors, administrators, successors, and assigns, I hereby fully and forever generally release and discharge the Company, its current, former and future parents, subsidiaries, affiliated companies, related entities, employee benefit plans, and, in such capacities, their fiduciaries, predecessors, successors, officers, directors, shareholders, agents, employees and assigns (collectively, the Released Parties) from any and all claims, causes of action, and liabilities up through the date of my execution of the Release. The claims subject to this release include, but are not limited to, those relating to my employment with the Company and/or any predecessor to Company and the termination of such employment. All such claims (including related attorneys fees and costs) are barred without regard to whether those claims are based on any alleged breach of a duty arising in statute, contract, or tort. This expressly includes my waiver and release of any rights and claims arising under any and all laws, rules, regulations, and ordinances, including, but not limited to: Title VII of the Civil Rights Act of 1964; the Older Workers Benefit Protection Act; the Americans With Disabilities Act; [the Age Discrimination in Employment Act (ADEA)];2 the Fair Labor Standards Act; the National Labor Relations Act; the Family and Medical Leave Act; the Employee Retirement Income Security Act of 1974, as amended (ERISA); the Workers Adjustment and Retraining Notification Act; the California Fair Employment and Housing Act (if applicable); the provisions of the California Labor Code (if applicable); the Equal Pay Act of 1963; and any similar law of any other state or governmental entity. The parties agree to apply California law in interpreting the Release. Accordingly, I further waive any rights under Section 1542 of the Civil Code of the State of California or any similar state statute. Section 1542 states: A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. This Release does not extend to, and has no effect upon, any benefits that have accrued or equity that has vested, and to which I have become vested or otherwise entitled to, under any employee benefit plan, program or policy sponsored or maintained by the Company, or to my right to indemnification by the Company, and continued coverage by the Companys directors and officers insurance. |
2 |
To include if Executive is over 40. |
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2. |
In understanding the terms of the Release and my rights, I have been advised to consult with an attorney of my choice prior to executing the Release. I understand that nothing in the Release shall prohibit me from exercising legal rights that are, as a matter of law, not subject to waiver such as: (a) my rights under applicable workers compensation laws; (b) my right, if any, to seek unemployment benefits; (c) my right to indemnity under California Labor Code section 2802 or other applicable state-law right to indemnity; (d) my right to file a charge or complaint with a government agency such as but not limited to the Equal Employment Opportunity Commission, the National Labor Relations Board, the Department of Labor, the California Department of Fair Employment and Housing, or other applicable state agency; and (e) my right to report any violation to the Securities and Exchange Commission or any other federal or state agency. I further understand that nothing in this Release precludes me from entitlement to any monetary recovery awarded by the Securities and Exchange Commission in connection with any action asserted by the Securities and Exchange Commission. Moreover, I will continue to be indemnified for my actions taken while employed by the Company to the same extent as other former directors and officers of the Company under the Companys Certificate of Incorporation and Bylaws and the Indemnification Agreement between me and the Company, and I will continue to be covered by the Companys directors and officers liability insurance policy as in effect from time to time to the same extent as other former directors and officers of the Company, each subject to the requirements of the laws of the State of Delaware. To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be resolved through binding arbitration as set forth in my Agreement. |
3. |
I understand and agree that the Company will not provide me with the Benefits unless I execute the Release. I also understand that I have received or will receive, regardless of the execution of the Release, all wages owed to me together with any accrued but unused vacation pay, less applicable withholdings and deductions, earned through my termination date. |
4. |
As part of my existing and continuing obligations to the Company, I have returned to the Company all Company documents (and all copies thereof) and other Company property that I have had in my possession at any time, including but not limited to Company files, notes, drawings, records, business plans and forecasts, financial information, specification, computer-recorded information, tangible property (including, but not limited to, computers, laptops, pagers, etc.), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof) except that I may keep my personal copies of (i) my compensation records and (ii) materials distributed to stockholders generally. I understand that, even if I did not sign the Release, I am still bound by any and all confidential/proprietary/trade secret information, non-disclosure and inventions assignment agreement(s) signed by me in connection with my employment with the Company, or with a predecessor or successor of the Company pursuant to the terms of such agreement(s). |
5. |
I represent and warrant that I am the sole owner of all claims relating to my employment with the Company and/or with any predecessor of the Company, and that I have not assigned or transferred any claims relating to my employment to any other person or entity. |
6. |
Section 5(b) - (c) of the Agreement is hereby incorporated herein by reference, and shall apply, together with any necessary conforming changes, to the provisions set forth herein. |
7. |
I understand and agree that nothing in the Release shall be interpreted or enforced in a manner that would interfere with my rights under the National Labor Relations Act, if any, to discuss or comment on the terms and conditions of my employment. |
8. |
I understand and agree that the Release shall not be construed at any time as an admission of liability or wrongdoing by either any Released Party or myself. |
9. |
[I understand and acknowledge that through the Release, I will be releasing the Released Parties from any and all claims I may have against them, including those under the ADEA, except as specified in the Release.]3 |
10. |
[I agree that I have had at least twenty-one (21) calendar days in which to consider whether to execute the Release, no one hurried me into executing the Release during that period, and no one coerced me into executing the Release. I understand that the offer of the Benefits and the Release shall expire on the twenty-second (22nd) calendar day after my employment termination date if I have not accepted it by that time. I further understand that the Companys obligations under the Release shall not become effective or enforceable until the eighth (8th) calendar day after the date I sign the Release provided that I have timely delivered it to Company (the Effective Date) and I understand that I may revoke my acceptance of the Release in the seven (7) day period following the date I deliver a signed copy of the Release to Company. I understand that the Benefits will become available to me at such time after the Effective Date.]4 |
11. |
In executing the Release, I acknowledge that I have not relied upon any statement made by the Company, or any of its representatives or employees, with regard to the Release unless the representation is specifically included herein. Furthermore, the Release contains our entire understanding regarding eligibility for Benefits (except as otherwise set forth in the Agreement) and supersedes any or all prior representation and agreement regarding the subject matter of the Release. However, the Release does not modify, amend or supersede written Company agreements that are consistent with enforceable provisions of this Release such as my Agreement, proprietary information and invention assignment agreement, and any stock, stock option and/or stock purchase agreements between Company and me. Once effective and enforceable, this agreement can only be changed by another written agreement signed by me and an authorized representative of the Company. |
3 |
To include if Executive is over 40. |
4 |
To include if Executive is over 40. |
12. |
Should any provision of the Release be determined by an arbitrator, court of competent jurisdiction, or government agency to be wholly or partially invalid or unenforceable, the legality, validity and enforceability of the remaining parts, terms, or provisions are intended to remain in full force and effect. Specifically, should a court, arbitrator, or agency conclude that a particular claim may not be released as a matter of law, it is the intention of the parties that the general release and the waiver of unknown claims above shall otherwise remain effective to release any and all other claims. I acknowledge that I have obtained sufficient information to intelligently exercise my own judgment regarding the terms of the Release before executing the Release. |
[SIGNATURE PAGE TO GENERAL RELEASE AGREEMENT FOLLOWS]
EMPLOYEES ACCEPTANCE OF RELEASE
BEFORE SIGNING MY NAME TO THE RELEASE, I STATE THE FOLLOWING: I HAVE READ THE RELEASE, I UNDERSTAND IT AND I KNOW THAT I AM GIVING UP IMPORTANT RIGHTS. I HAVE OBTAINED SUFFICIENT INFORMATION TO INTELLIGENTLY EXERCISE MY OWN JUDGMENT. I HAVE BEEN ADVISED THAT I SHOULD CONSULT WITH AN ATTORNEY BEFORE SIGNING IT, AND I HAVE SIGNED THE RELEASE KNOWINGLY AND VOLUNTARILY.
Date delivered to employee ___________, ______. | ||||||
Executed this ___________ day of ___________, ______. | ||||||
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||||||
Your Signature | ||||||
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||||||
Your Name (Please Print) |
Agreed and Accepted: | ||
FIGS, Inc. | ||
By: |
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Date: |
Exhibit B
Arbitration Agreement
See attached.
Exhibit 10.14
FIGS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
Eligible Directors (as defined below) on the board of directors (the Board) of FIGS, Inc. (the Company) shall be eligible to receive cash and equity compensation as set forth in this Non-Employee Director Compensation Program (this Program). The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically as set forth herein and without further action of the Board, to each member of the Board who is not an employee of the Company or any of its parents or subsidiaries and who is determined by the Board to be eligible to receive compensation under this Program (each, an Eligible Director), who may be eligible to receive such cash or equity compensation, unless such Eligible Director declines the receipt of such cash or equity compensation by written notice to the Company.
This Program shall become effective upon the closing of the initial public offering of the Companys common stock (the Effective Date) and shall remain in effect until it is revised or rescinded by further action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. No Eligible Director shall have any rights hereunder, except with respect to equity awards granted pursuant to Section 2 of this Program.
1. Cash Compensation.
a. Annual Retainers. Each Eligible Director shall be eligible to receive an annual cash retainer of $50,000 for service on the Board.
b. Additional Annual Retainers. An Eligible Director shall be eligible to receive the following additional annual retainers, as applicable:
(i) Audit Committee. An Eligible Director serving as Chairperson of the Audit Committee shall be eligible to receive an additional annual retainer of $20,000 for such service. An Eligible Director serving as a member of the Audit Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $10,000 for such service.
(ii) Compensation Committee. An Eligible Director serving as Chairperson of the Compensation Committee shall be eligible to receive an additional annual retainer of $15,000 for such service. An Eligible Director serving as a member of the Compensation Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $7,500 for such service.
(iii) Nominating and Corporate Governance Committee. An Eligible Director serving as Chairperson of the Nominating and Corporate Governance Committee shall be eligible to receive an additional annual retainer of $10,000 for such service. An Eligible Director serving as a member of the Nominating and Corporate Governance Committee (other than the Chairperson) shall be eligible to receive an additional annual retainer of $5,000 for such service.
c. Payment of Retainers. The annual cash retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based on a calendar quarter and shall be paid by the Company in arrears not later than 30 days following the end of each calendar quarter. In the event an Eligible Director does not serve as a director, or in the applicable positions described in Section 1(b), for an entire calendar quarter, the retainer paid to such Eligible Director shall be prorated for the portion of such calendar quarter actually served as a director, or in such position, as applicable.
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2. Equity Compensation.
a. General. Eligible Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Companys 2021 Equity Incentive Plan or any other applicable Company equity incentive plan then-maintained by the Company (such plan, as may be amended from time to time, the Equity Plan) and may be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms approved by the Board prior to or in connection with such grants. All applicable terms of the Equity Plan apply to this Program as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Equity Plan. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Equity Plan.
b. Initial Awards. Each Eligible Director who is initially elected or appointed to serve on the Board after the Effective Date automatically shall be granted a Restricted Stock Unit award (each, an Initial Award). The number of Restricted Stock Units subject to an Initial Award will be determined by dividing the Pro-Rated Value by the closing price for the Companys common stock on the applicable grant date. Each Initial Award shall be granted on the date on which such Eligible Director is appointed or elected to serve on the Board (the Election Date), and shall vest in full on the earlier to occur of (x) the one-year anniversary of the applicable grant date and (y) the date of the next Annual Meeting (as defined below) following the grant date, subject to continued service through the applicable vesting date. The Pro-Rated Value shall equal $150,000, multiplied by a fraction, (i) the numerator of which is the difference between 365 and the number of days from the immediately preceding Annual Meeting date (or the Effective Date, if there is no preceding Annual Meeting date) through the appointment or election date and (ii) the denominator of which is 365.
c. Annual Awards. An Eligible Director who is serving on the Board as of the date of the annual meeting of the Companys stockholders (the Annual Meeting) each calendar year beginning with calendar year 2022 shall be granted a Restricted Stock Unit award with a value of $150,000 (an Annual Award, together with the Initial Award, the Director Award). The number of Restricted Stock Units subject to an Annual Award will be determined by dividing the value by the closing price for the Companys common stock on the applicable grant date. Each Annual Award shall vest in full on the earlier to occur of (x) the one-year anniversary of the applicable grant date and (y) the date of the next Annual Meeting following the grant date, subject to continued service through the applicable vesting date.
d. Accelerated Vesting Events. Notwithstanding the foregoing, an Eligible Directors Director Award(s) shall vest in full immediately prior to the occurrence of a Change in Control, to the extent outstanding at such time, if the Eligible Director will not become, as of immediately following such Change in Control, a member of the board of the Company or the ultimate parent of the Company.
3. Compensation Limits. Notwithstanding anything to the contrary in this Program, all compensation payable under this Program will be subject to any limits on the maximum amount of non-employee Director compensation set forth in the Equity Plan, as in effect from time to time.
*****
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Exhibit 10.15
FIGS, INC.
February 22, 2018
Heather Hasson
RE: |
Cash Sale Bonus Letter Agreement |
Dear Heather,
On behalf of Figs, Inc. (the Company), I am pleased to offer you the opportunity to earn a bonus payable on a Qualifying Cash Sale (as defined below), as described in this letter agreement (the Letter Agreement).
Upon the occurrence of a Qualifying Cash Sale, you will be eligible to earn a transaction bonus in the amount of $1,500,000 less applicable tax withholdings and deductions (the Bonus Payment). Notwithstanding the foregoing, a transaction will not be deemed a Qualifying Cash Sale unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Internal Revenue Code of 1986, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time. Qualifying Cash Sale for purposes of this Letter Agreement shall mean a sale of the Company (whether by merger, stock sale, sale of assets or otherwise and whether in a single transaction or series of related transactions) in which the implied equity valuation of the Company is equal to or greater than $400 million and either: (1) the cash consideration actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than $400 million; or (2) (i) the cash consideration actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than $300 million and (ii) any publicly traded equity securities (excluding any coin-based securities) actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than the amount that is $400 million minus the amount of cash consideration actually received by the stockholders of the Company pursuant to clause (2)(i) above.
In order to be eligible for the Bonus Payment, you must sign, date and return this Letter Agreement to the Company. If earned, the Bonus Payment will be paid to you in a lump sum amount, less required payroll withholdings and deductions, within ten (10) days following the Qualifying Cash Sale. The Bonus Payment will be in addition to any other amounts you may be entitled to receive in connection with a Qualifying Cash Sale under any other agreement. For the avoidance of doubt, you do not have to be an employee of, or service provider to, the Company on the date of the Qualifying Cash Sale in order to receive the Bonus Payment.
This Letter Agreement shall terminate upon a Qualifying Cash Sale. This Letter Agreement represents the entire agreement between you and the Company with respect to a bonus arrangement in connection with a sale of the Company and it supersedes any other promises, warranties or representations with respect to such an arrangement. Additionally, as before, your employment relationship with the Company remains subject to that certain Employment Agreement, dated as of October 20, 2017, by and between you and the Company. This Letter Agreement will be governed by California law. This letter agreement is intended to fit within an exemption from, or comply with, Section 409A, and will be so interpreted. The Letter Agreement may only be amended or terminated in a written agreement signed by you and a duly authorized officer of the Company (specifically authorized by unanimous action by the Companys Board of Directors), and will bind the heirs, personal representatives, successors and assigns of you and the Company, and inure to the benefit of you, the Company, their heirs, successors and assigns.
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Very truly yours, | ||
Figs, Inc. | ||
By: |
/s/ Catherine Spear |
|
Catherine Spear, President |
Signature Page to Cash Sale Bonus Letter
AGREED AND ACCEPTED: | ||
/s/ Heather Hasson |
||
Heather Hasson | ||
Date: | February 22, 2018 | 1:30 PM PST |
Signature Page to Cash Sale Bonus Letter
Exhibit 10.16
FIGS, INC.
February 22, 2018
Catherine Spear
RE: |
Cash Sale Bonus Letter Agreement |
Dear Trina,
On behalf of Figs, Inc. (the Company), I am pleased to offer you the opportunity to earn a bonus payable on a Qualifying Cash Sale (as defined below), as described in this letter agreement (the Letter Agreement).
Upon the occurrence of a Qualifying Cash Sale, you will be eligible to earn a transaction bonus in the amount of $3,750,000 less applicable tax withholdings and deductions (the Bonus Payment). Notwithstanding the foregoing, a transaction will not be deemed a Qualifying Cash Sale unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Internal Revenue Code of 1986, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time. Qualifying Cash Sale for purposes of this Letter Agreement shall mean a sale of the Company (whether by merger, stock sale, sale of assets or otherwise and whether in a single transaction or series of related transactions) in which the implied equity valuation of the Company is equal to or greater than $400 million and either: (1) the cash consideration actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than $400 million; or (2) (i) the cash consideration actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than $300 million and (ii) any publicly traded equity securities (excluding any coin-based securities) actually received by the stockholders of the Company (including pursuant to any escrow or holdback, but not pursuant to any earn-out, and net of transaction expenses) is equal to or greater than the amount that is $400 million minus the amount of cash consideration actually received by the stockholders of the Company pursuant to clause (2)(i) above.
In order to be eligible for the Bonus Payment, you must sign, date and return this Letter Agreement to the Company. If earned, the Bonus Payment will be paid to you in a lump sum amount, less required payroll withholdings and deductions, within ten (10) days following the Qualifying Cash Sale. The Bonus Payment will be in addition to any other amounts you may be entitled to receive in connection with a Qualifying Cash Sale under any other agreement. For the avoidance of doubt, you do not have to be an employee of, or service provider to, the Company on the date of the Qualifying Cash Sale in order to receive the Bonus Payment.
This Letter Agreement shall terminate upon a Qualifying Cash Sale. This Letter Agreement represents the entire agreement between you and the Company with respect to a bonus arrangement in connection with a sale of the Company and it supersedes any other promises, warranties or representations with respect to such an arrangement. Additionally, as before, your employment relationship with the Company remains subject to that certain Employment Agreement, dated as of October 20, 2017, by and between you and the Company. This Letter Agreement will be governed by California law. This letter agreement is intended to fit within an exemption from, or comply with, Section 409A, and will be so interpreted. The Letter Agreement may only be amended or terminated in a written agreement signed by you and a duly authorized officer of the Company (specifically authorized by unanimous action by the Companys Board of Directors), and will bind the heirs, personal representatives, successors and assigns of you and the Company, and inure to the benefit of you, the Company, their heirs, successors and assigns.
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Very truly yours, | ||
Figs, Inc. | ||
By: |
/s/ Catherine Spear |
|
Catherine Spear, President |
Signature Page to Cash Sale Bonus Letter
AGREED AND ACCEPTED: | ||
/s/ Catherine Spear |
||
Catherine Spear | ||
Date: | February 22, 2018 | 1:26 PM PST |
Signature Page to Cash Sale Bonus Letter
Exhibit 10.17
VOTING AGREEMENT
This VOTING AGREEMENT (this Agreement) is made and entered into as of [●], 2021 by and among FIGS, Inc., a Delaware corporation (the Company), Heather Hasson and Catherine Spear (each, an Individual Founder and, together, the Individual Founders), the trusts named on the signature pages hereto (each, a Founder Trust and, each Individual Founder and her Founder Trusts, a Founder), the Special Proxyholder identified on the signature pages hereto (the Special Proxyholder), and Tulco, LLC, a Delaware limited liability company (Tulco). The Individual Founders and Founder Trusts are referred to collectively herein as the Founders. The Founders and Tulco and each other trust or entity that may become a party hereto pursuant to Section 8.13 are referred to collectively herein as the Investor Parties, and each, an Investor Party. The Company, the Special Proxyholder and the Investor Parties are referred to collectively herein as the Parties, and each, a Party. Capitalized terms used but not otherwise defined herein shall have the meaning given to them in the Amended and Restated Certificate of Incorporation (as amended, restated or otherwise modified from time to time, the Certificate of Incorporation) of the Company.
RECITALS
WHEREAS, each of the Parties desires to provide for the election or re-election of the Individual Founders to the Board of Directors of the Company (the Board) and for the election or re-election of a Tulco Director after the Company has completed its proposed initial public offering of Class A common stock, par value $0.0001 per share (Class A Common Stock), in a firm commitment underwritten offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the IPO); and
WHEREAS, the Certificate of Incorporation to be filed in connection with the IPO will provide for the reclassification of all outstanding shares of the Companys common stock, par value $0.0001 per share, into shares of Class A Common Stock and subsequent thereto certain of such shares will be exchanged for shares of Class B Common Stock, par value $0.0001 per share (Class B Common Stock and, together with Class A Common Stock, Common Stock).
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants made herein, the Parties hereby agree as follows:
1. Voting Provisions.
1.1 Shares. Each Party expressly agrees that the terms and restrictions of this Agreement shall apply to all shares of each class of Common Stock (or other shares of capital stock of the Company or shares of capital stock of any successor in interest of the Company, whether by sale, merger, consolidation or other similar transaction, or by purchase, assignment or operation of law) (i) which each Investor Party thereof owns or holds or hereafter acquires or holds by any means, including, without limitation, by purchase, assignment, conversion or exercise of any stock option, warrant or other right, the settlement of any restricted stock unit or as a result of any stock dividend, stock split, reorganization, reclassification, whether voluntary or involuntary, or other similar transaction, or (ii) with respect to which each Investor Party thereof exercises
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voting control, or hereafter acquires voting control by any means (including, in the case of each of (i) and (ii), as a result of a transfer, assignment, sale or other disposition of any Shares to a Permitted Transferee pursuant to the applicable provisions of the Certificate of Incorporation) (the shares described in (i) and (ii), collectively with respect to each Investor Party, Shares, provided that, any such shares of Common Stock or other capital stock shall only constitute Shares of an Investor Party for purposes of this Agreement while so owned, held or controlled (with respect to voting) by such Investor Party).
1.2 Board Composition.
(a) |
Subject to Section 2, during the term of this Agreement, from time to time and at all times, each Investor Party, in its capacity as a stockholder or beneficial owner of Shares, agrees to vote all Shares FOR, or cause all Shares to be voted FOR, the election or re-election of each of the Individual Founders that has been duly nominated for election or re-election as members of the Board at each annual or special meeting of stockholders at which members of the Board are to be elected, and to take all actions by consent in writing or by electronic transmission in lieu of any such meeting to approve the election or re-election of each of the Individual Founders that have been duly nominated for election or re-election as members of the Board. |
(b) |
For so long as the aggregate number of outstanding shares of Common Stock held by Tulco and its Permitted Transferees represents at least 10% of the aggregate number of outstanding shares of all classes of Common Stock (calculated on a diluted basis to include any issued and outstanding options, restricted stock units or other equity awards, whether vested or unvested, of the Company) (the Tulco Director Threshold), during the term of this Agreement, from time to time and at all times, each Investor Party, in its capacity as a stockholder or beneficial owner of Shares, agrees to vote all Shares FOR, or cause all Shares to be voted FOR, the election or re-election of one (1) director designated by Tulco (the Tulco Director), that has been duly nominated for election or re-election as a member of the Board at each annual or special meeting of stockholders at which members of the Board are to be elected, and to take all actions by consent in writing or by electronic transmission in lieu of any such meeting to approve the election or re-election of the Tulco Director that has been duly nominated for election or re-election as a member of the Board. In the event of the death, resignation or removal of the Tulco Director, Tulco is entitled to designate an individual to fill the vacant seat created thereby for the duration of his or her term and, thereafter, the director designated by Tulco to fill such vacancy shall be referred to as the Tulco Director for purposes of this Agreement. |
(c) |
Each Investor Party agrees to execute and deliver any written consents representing an action by stockholders of the Company required to perform the obligations of this Agreement. |
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(d) |
For the avoidance of doubt, nothing in this Agreement requires any Individual Founder or Tulco Director to serve as a member of the Board, and any Individual Founder or Tulco Director may resign from the Board at any time. |
1.3 Removal of Board Members. Subject to Section 2, during the term of this Agreement, from time to time and at all times, each Investor Party, in its capacity as a stockholder or beneficial owner of Shares, agrees to vote, or cause to be voted, at any annual meeting or special meeting of stockholders at which any Individual Founder or Tulco Director is to be removed from the Board, all Shares AGAINST the removal of such Individual Founder or Tulco Director, as the case may be, from the Board, and to not take any actions by consent in lieu of any such meeting in favor of the removal of each such Individual Founder or Tulco Director, as the case may be, from the Board. For so long as Tulco is entitled to designate a director as provided in Section 1.2(b), upon request of Tulco to remove such director, each Party agrees to vote, or cause to be voted, all Shares in favor of such removal.
1.4 No Liability for Election of Individual Founders or Tulco Director. No Investor Party shall have any liability as a result of voting in favor of the election of any person to the Board for any act or omission by such person in his or her capacity as a member of the Board, nor shall any Investor Party have any liability as a result of voting for any Individual Founder or Tulco Director in accordance with the provisions of this Agreement.
2. Voting Proxy. Each Individual Founder and the Founder Trusts affiliated with such Individual Founder hereby grants, effective upon such Individual Founders death or Disability a voting proxy, coupled with an interest in all Shares of such Individual Founder and her Founder Trusts, to the other Individual Founder to vote or to deliver or not deliver consent in writing or by electronic transmission, in any election or re-election of directors of the Company or in any vote of stockholders regarding the removal from the Board of any Individual Founder or Tulco Director, all such Shares in the manner provided in Sections 1.2 and 1.3 hereof (the Voting Proxy); provided that, effective upon the death or Disability of the sole remaining Individual Founder or upon the simultaneous death or Disability of both Individual Founders, the Voting Proxy shall automatically transfer to the Special Proxyholder, in which case all such Shares shall be voted by the Special Proxyholder in the manner provided in Sections 1.2(b) and 1.3 hereof. Notwithstanding the foregoing, upon the death or Disability of the first Individual Founder to die or become Disabled, if (i) there are any Shares that are held in an irrevocable trust of which the surviving Individual Founder is the grantor, (ii) the Company would be treated as a controlled corporation with respect to such surviving Individual Founder as defined in Section 2036(b)(2) of the Internal Revenue Code, and (iii) pursuant to this Section 2, the Voting Proxy over such shares would transfer to such surviving Individual Founder, the Voting Proxy shall instead transfer to the Special Proxyholder, and the Special Proxyholder shall have full power and authority, and hereby agrees, to vote the Shares held in such trust in accordance with Section 1.2(b) and 1.3 hereof. The Voting Proxy, with respect to each such Share, is coupled with an interest and shall be irrevocable and shall terminate, with respect to such Share, upon the earliest to occur of (i) the termination of this Agreement pursuant to its terms; (ii) such time as this Section 2 is amended to remove such grant of proxy in accordance with Section 8.6 hereof; and (iii) such Share is converted into a share of Class A Common Stock pursuant to Section 7 of Part A of Article IV of the Certificate of Incorporation.
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3. Nominating Provisions. Each Party agrees, in connection with each annual meeting or special meeting of stockholders at which directors are to be elected following the closing of the IPO, that such Party shall take all Necessary Action (as defined below) to, or to cause the Board and the Nominating and Corporate Governance Committee of the Board, as applicable, to (i) include the Individual Founders and Tulco Director in the slate of nominees nominated by the Board for the applicable class of directors (or the full Board if the Board is no longer classified) for election or re-election by the stockholders of the Company, (ii) include such Individual Founders and Tulco Director in the Companys proxy statement for such stockholder meeting or similar document or soliciting materials, and (iii) recommend in favor of each Individual Founders and Tulco Directors election or re-election as a director. Necessary Action for purposes of this paragraph means, with respect to a specified result, all actions, to the fullest extent permitted by applicable law and as consistent with applicable fiduciary duties of directors, necessary to cause such result, including, without limitation, (a) voting, providing a written consent or otherwise causing the adoption of board resolutions with respect to the nomination of each Individual Founder and Tulco Director and inclusion in the Companys proxy statement or similar document or soliciting materials of the Individual Founder and Tulco Director, (b) causing the adoption of board and/or stockholder resolutions and amendments to any organizational documents, (c) executing agreements and instruments and (d) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result. In the event that an Individual Founder or the Tulco Director is not included in the slate of nominees nominated by the Board for an applicable meeting of stockholders, the Company further agrees to provide such Individual Founder or the Tulco Director, as applicable, the opportunity to nominate herself or himself for election to the Board. The obligations set forth in this paragraph shall terminate with respect to an Individual Founder or a given Tulco Director upon the earlier to occur of (i) the date such individual is no longer serving as a member of the Board, whether by resignation, removal for cause or determination not to stand for re-election, and (ii) such individuals death or Disability.
4. Transfers. Nothing in this Agreement shall prevent any Investor Party from effecting a Transfer of its Shares (including through an assignment, sale or other disposition). Upon any such Transfer (other than a Permitted Transfer), each such transferred Share shall cease to be subject to this Agreement and shall, in accordance with the terms of Section 7 of Part A of Article IV of the Certificate of Incorporation, convert into one share of Class A Common Stock.
5. Further Assurances. At any time or from time to time after the date hereof, the Parties agree to cooperate with each other, and at the request of any Investor Party, to execute and deliver any further instruments or documents and to take all such further action as the requesting Investor Party may reasonably request in order to evidence or effectuate the consummation of the obligations contemplated hereby and to otherwise carry out the intent of the Parties hereunder.
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6. Remedies.
6.1 Specific Enforcement. Each Party acknowledges and agrees that each Party will be irreparably damaged in the event any of the provisions of this Agreement are not performed by the Parties in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that any aggrieved Party shall be entitled to an injunction to prevent breaches of this Agreement, and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of the United States or any state having subject matter jurisdiction.
6.2 Remedies Cumulative. All remedies, either under this Agreement or by law or otherwise afforded to any Party, shall be cumulative and not alternative.
7. Term and Termination. This Agreement shall be conditioned upon and effective as of the filing and effectiveness of the Certificate of Incorporation immediately prior to the closing of the Companys IPO and shall continue in effect until, and shall terminate (a) upon such time as neither of the Founders nor any of their Permitted Transferees hold shares of Class B Common Stock, (b) with respect to Tulco, upon such time as Tulco or its Permitted Transferees no longer hold, in the aggregate, a number of Shares equal to or exceeding the Tulco Director Threshold, or (c) upon a Final Conversion Event. If the closing of the IPO has not occurred by June 30, 2021, this Agreement shall automatically terminate and be of no further force or effect.
8. Miscellaneous.
8.1 No Assignment. The terms and conditions of this Agreement, including all obligations and rights therein, may not be assigned.
8.2 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.
8.3 Counterparts; Facsimile. This Agreement may be executed and delivered by facsimile signature, including electronic signatures, and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
8.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
8.5 Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the Party to be notified, (b) when sent, if sent by facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipients next business day, (c) when sent, if sent by electronic mail during the recipients normal business hours, and if not sent during normal business hours, then on the recipients next business day, (d) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (e) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery with written verification of receipt. All communications shall be sent to the respective Parties at their address
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set forth below or on the signature pages hereto, or at such other address as any Party shall, from time to time, designate by ten (10) days advance written notice:
If to Heather Hasson or her Founder Trusts, to:
Heather Hasson
c/o FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, CA 90404
Email:
If to Catherine Spear or her Founder Trusts, to:
Catherine Spear
c/o FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, CA 90404
Email:
If to Tulco, to:
c/o Jeff Miller
61 E. Colorado Blvd.
Unit 200
Pasadena, CA 91105
Tel: (626) 495-0702
Email:
And in each case, with a copy (which shall not constitute notice) to:
Todd Maron
FIGS, Inc.
2834 Colorado Avenue, Suite 100
Santa Monica, California 90404
Email:
***
Marc Jaffe
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022
Tel: (212) 906-1281
Email:
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***
8.6 Consent Required to Terminate, Amend or Waive. This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by each of the Parties; provided that, in the event of the death or Disability of any Individual Founder, the holder of the Voting Proxy shall sign on behalf of such Individual Founder and in the event of the death or Disability of both Individual Founders, the Special Proxyholder shall sign on behalf of the Individual Founders. Any amendment, termination or waiver effected in accordance with this Section 8.6 shall be binding on each Party.
8.7 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any Party under this Agreement, upon any breach or default of any Party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting Party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any breach or default under this Agreement, or any waiver on the part of any Party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Party, shall be cumulative and not alternative.
8.8 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
8.9 Entire Agreement. This Agreement shall constitute the full and entire understanding and agreement among the Parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing among the Parties are expressly canceled.
8.10 Legend on Share Certificates. Each certificate representing any Shares issued after the date hereof shall be endorsed by the Company with a legend reading substantially as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT, AS MAY BE AMENDED FROM TIME TO TIME (THE VOTING AGREEMENT) (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE ORIGINAL HOLDER OF THESE SHARES), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO, AND SHALL BECOME BOUND BY, ALL THE PROVISIONS OF THE VOTING AGREEMENT UNTIL THE TERMINATION THEREOF AS SET FORTH THEREIN.
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The Company agrees to cause the certificates evidencing the Shares issued after the date hereof to bear the legend required by this Section 8.10. The Parties do hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by this Section 8.10, herein and/or the failure of the Individual Founders or Tulco to supply, free of charge, a copy of this Agreement as provided hereunder shall not affect the validity or enforcement of this Agreement.
8.11 Stock Splits, Stock Dividends, etc. In the event of any issuance of shares of the Companys voting securities hereafter to any of the Parties (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such securities shall become subject to this Agreement and shall be endorsed with the legend set forth in Section 8.10.
8.12 Manner of Voting; Grant of Proxy. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law.
8.13 Additional Investor Parties. Unless prohibited by applicable law, in the event that after the date of this Agreement, a Founder, Tulco or other Qualified Stockholder effects a Transfer of Shares that is intended to be a Permitted Transfer, then, to the extent the person or entity that will have direct and exclusive Voting Control over the Shares immediately following the Transfer to the intended transferee is not already party to this Agreement, such transferor shall cause such person or entity to, as a condition of such Transfer, become a party to this Agreement by executing a joinder agreement in the form attached hereto as Exhibit A (Joinder Agreement), agreeing to be bound by and subject to the terms of this Agreement as an Investor Party including making the representations and warranties set forth in Section 8.14, and thereafter each such person or entity shall be deemed an Investor Party for all purposes under this Agreement. No action or consent by the Parties shall be required for such joinder to this Agreement by such additional Investor Party, so long as such additional Investor Party has agreed in writing to be bound by all of the obligations as an Investor Party hereunder.
8.14 Representations and Warranties. Each of the Parties represents and warrants, severally and not jointly, to the other Parties that (a) such Party has all requisite power, authority and capacity, as applicable, to execute and deliver this Agreement and to perform such Partys obligations under this Agreement; (b) the execution, delivery and performance of this Agreement by such Party do not (i) with respect to each Party that is not a natural person, violate the organizational documents (including any trust agreement, where applicable) of such Party, (ii) violate any law or order applicable to such Party, or (iii) require any consent or approval that has not previously been obtained; and (c) assuming the due authorization, execution and delivery by each other Party, this Agreement constitutes a valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.
8.15 Dispute Resolution. The Parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the Delaware Court of Chancery (or, only if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any Federal court of the United States of America sitting in the State of Delaware) for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the Delaware Court of Chancery (or, only if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any Federal court of the United States of America sitting in the State of
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Delaware), and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named court(s), that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
8.16 Attorneys Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the non-prevailing Party shall pay all costs and expenses incurred by the prevailing Party, including, without limitation, all reasonable attorneys fees.
8.17 Spousal Consent. If any Individual Founder is married on the date of this Agreement, such Individual Founders spouse shall execute and deliver to each other Founder a consent of spouse in the form of Exhibit B hereto (Consent of Spouse), effective on the date hereof. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Individual Founders Common Stock that do not otherwise exist by operation of law or the agreement of the Parties. If any Individual Founder should marry or remarry subsequent to the date of this Agreement, such Individual Founder shall within thirty (30) days thereafter obtain his/her new spouses acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.
8.18 Special Proxyholder. The Individual Founders may, by unanimous written consent of each Individual Founder then living, replace the Special Proxyholder from time to time and shall appoint a replacement upon the Special Proxyholders earlier death, Disability or resignation, which new Special Proxyholder shall become party to this Agreement with all of the rights and obligations of the Special Proxyholder set forth herein.
[Signature pages follow.]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above.
FIGS, INC.
By:
Name:
Title:
[Signature page to FIGS, Inc. Voting Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above.
HEATHER HASSON
HEATHER HASSON, TRUSTEE OF HEATHER HASSON REVOCABLE TRUST
U/A/D 12/18/2017
[Signature page to FIGS, Inc. Voting Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above.
CATHERINE SPEAR
CATHERINE SPEAR, AS TRUSTEE OF
THE CATHERINE SPEAR REVOCABLE TRUST U/A/D 12/18/2017
CATHERINE SPEAR, AS TRUSTEE OF
THE WINGAERSHEEK IRREVOCABLE TRUST I, U/A/D 10/15/2020
CATHERINE SPEAR, AS TRUSTEE OF
THE WINGAERSHEEK IRREVOCABLE TRUST II, U/A/D 10/15/2020
CATHERINE SPEAR, AS TRUSTEE OF
THE MAPLE TREE IRREVOCABLE TRUST, U/A/D 10/16/2020
[Signature page to FIGS, Inc. Voting Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above.
DEVON DUFF GAGO, AS SPECIAL PROXYHOLDER
DEVON DUFF GAGO, AS SPECIAL TRUSTEE OF
THE WINGAERSHEEK IRREVOCABLE TRUST II, U/A/D 10/15/2020
DEVON DUFF GAGO, AS SPECIAL TRUSTEE OF
THE WINGAERSHEEK IRREVOCABLE TRUST I, U/A/D 10/15/2020
Address: |
Devon Duff Gago |
c/o FIGS, Inc. |
2834 Colorado Avenue, Suite 100 |
Santa Monica, CA 90404 |
Email: |
[Signature page to FIGS, Inc. Voting Agreement]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written above.
TULCO, LLC
By:
Name:
Title:
[Signature page to FIGS, Inc. Voting Agreement]
Exhibit 10.18
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this Agreement) is made and entered into as of [ 🌑 ], 2021 by and among FIGS, Inc., a Delaware corporation (the Company), and stockholders of the Company listed on Exhibit A hereto (collectively, Exchange Stockholders).
RECITALS
WHEREAS, the Board of Directors of the Company (the Board) has determined that it is in the best interests of the Company and its stockholders to implement a dual class structure in connection with the Companys proposed initial public offering of its capital stock in a firm commitment underwritten offering (the IPO) pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act);
WHEREAS, in connection with the IPO, the Board has approved an Amended and Restated Certificate of Incorporation of the Company (the Certificate of Incorporation), which, among other things, if effected in connection with the IPO, would create two classes of common stock of the Company, Class A common stock, par value $0.0001 per share (Class A Common Stock), entitling holders to one (1) vote per share and Class B common stock, par value $0.0001 per share (Class B Common Stock), entitling holders to twenty (20) votes per share;
WHEREAS, the Certificate of Incorporation further provides that the Companys common stock, par value $0.0001 per share (Pre-IPO Common Stock), will, upon the effectiveness of the filing of the Certificate of Incorporation (the Effective Time), be reclassified as Class A Common Stock;
WHEREAS, the Exchange Stockholders hold or will hold shares of Pre-IPO Common Stock as of immediately prior to the Effective Time and all such shares of Pre-IPO Common Stock will be reclassified as shares of Class A Common Stock at the Effective Time;
WHEREAS, the Board has determined that exchanging certain shares of Class A Common Stock that will be held by the Exchange Stockholders at the Effective Time as set forth on Exhibit A hereto for shares of Class B Common Stock as part of the implementation of the dual class structure is advisable and in the best interest of the Company and all of its stockholders, including its stockholders other than the Exchange Stockholders; and
WHEREAS, the parties hereto intend that no gain or loss shall be recognized in the Exchange (as defined below) pursuant to Sections 368(a)(1)(E) and/or 1036 of the Internal Revenue Code of 1986, as amended (the Code).
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto agree as follows:
1. Exchange of Class A Common Stock.
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1.1 Subject to the terms and conditions of this Agreement, immediately following the Effective Time and effective upon the consummation of the IPO (the Exchange Effective Time), each Exchange Stockholder shall be deemed to have automatically transferred to the Company the shares of Class A Common Stock held by such Exchange Stockholder as set forth on Exhibit A hereto (the Class A Shares) and the Company shall issue to each Exchange Stockholder shares of Class B Common Stock (the Class B Shares), at an exchange ratio of one (1) Class A Share for one (1) Class B Share (the Exchange). The number of Class A Shares to be transferred and the number of Class B Shares to be received in the Exchange by each Exchange Stockholder are as set forth on Exhibit A hereto.
1.2 Concurrently herewith, each Exchange Stockholder is delivering to the Company such instruments of transfer or other documentation as may be reasonably required to evidence that the shares of the Pre-IPO Common Stock (which will automatically be renamed as Class A Common Stock upon the Effective Time) have been duly transferred to the Company to be held in escrow until the Exchange Effective Time and such documents are automatically released without further action by the Company or the Exchange Stockholder at the Exchange Effective Time.
1.3 Upon the effectiveness of the Exchange, the Company shall deliver to each Exchange Stockholder such documentation as may be reasonably required to evidence that the Class B Shares have been duly issued and transferred to the applicable Exchange Stockholder.
2. Representations and Warranties.
2.1 Representations and Warranties of the Exchange Stockholders. Each Exchange Stockholder hereby represents and warrants to the Company, with respect to the transactions contemplated hereby, as follows:
(a)Ownership; Authority. Each Exchange Stockholder will be, as of the Exchange Effective Time, the beneficial and legal owner of the Class A Shares exchanged hereunder, free and clear of all liens, encumbrances and restrictions (except for restrictions on transfer arising under applicable securities laws or as set forth or contemplated by this Agreement, the Certificate of Incorporation or any other agreements to which such Exchange Stockholder and the Company are a party). Each Exchange Stockholder has the full right, power and authority to enter into this Agreement and, assuming the waiver or inapplicability of any and all rights of first refusal or co-sale by the Company and the Companys stockholders that are applicable to the transactions contemplated hereby, to transfer, convey and exchange the Class A Shares in accordance with this Agreement. Assuming the due authorization, execution and delivery by the Company, this Agreement constitutes a valid and binding agreement of such Exchange Stockholder, enforceable against such Exchange Stockholder in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity). Upon consummation of the Exchange contemplated hereby, the Company will acquire from Exchange Stockholder good and marketable title to the Class A Shares, free and clear of any and all liens, encumbrances and restrictions (except for restrictions on transfer arising under applicable securities laws or as set forth or contemplated by this Agreement, the Certificate of Incorporation or any other agreements to which such Exchange Stockholder and the Company are a party, and subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity).
(b)Governmental Authorization. The execution, delivery and performance by such Exchange Stockholder of this Agreement and the consummation of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental authority on the part of such Exchange Stockholder (excluding, for the avoidance of
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doubt (a) the filing by the Company of the Certificate of Incorporation with the Secretary of State of the State of Delaware and (b) compliance by the Company with any applicable requirements of any applicable state or federal securities laws). For purposes of this Agreement, governmental authority means any transnational, domestic or foreign federal, state or local governmental, regulatory or administrative authority, department, court, agency or official, including any political subdivision thereof.
(c) Non-contravention. The execution, delivery and performance by such Exchange Stockholder of this Agreement and the consummation of the transactions contemplated hereby do not and will not, assuming compliance with the matters referred to in Section 2.1(b) and approval of and adoption by the Companys stockholders of the Certificate of Incorporation, () violate any governing document, including any trust agreement, applicable to such Exchange Stockholder, (b) violate any law or order applicable to such Exchange Stockholder, (c) assuming the waiver or inapplicability of any and all rights of first refusal or co-sale held by the Company or the Companys stockholders that are applicable to the transactions contemplated hereby, require any consent or other action under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any obligation of such Exchange Stockholder or to the loss of any benefit to which such Exchange Stockholder is entitled under any provision of any agreement or other instrument binding upon such Exchange Stockholder, or (d) result in the creation or imposition of any lien on such Exchange Stockholders Class B Shares, other than restrictions on transfer arising under applicable securities laws or as set forth or contemplated by this Agreement, the Certificate of Incorporation or any other agreements to which such Exchange Stockholder and the Company are a party.
(d) Restricted Securities; Rule 144. Such Exchange Stockholder understands that the Class B Shares are characterized as restricted securities under the Securities Act because such shares are being acquired from the Company in a transaction not involving a public offering and in exchange for shares acquired from the Company in a transaction not involving a public offering, and that under the Securities Act and the rules and regulations promulgated thereunder the Class B Shares may be resold without registration under the Securities Act only in certain limited circumstances, and subject to the restrictions under the Companys certificate of incorporation. Such Exchange Stockholder understands and hereby acknowledges that the Class B Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is otherwise available. Such Exchange Stockholder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit limited resales of shares purchased in a transaction not involving a public offering, subject to the satisfaction of certain conditions.
(e)Legends. It is understood that any certificate or book entry position representing the Class B Shares and any securities issued in respect thereof or exchange therefor, shall bear legends in substantially the following form (in addition to any legend required under applicable state securities laws or agreements to which the Exchange Stockholder is a party):
THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR
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AN EXEMPTION THEREFROM. THE ISSUER OF THESE SHARES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
2.2 Representations and Warranties of the Company. The Company hereby represents and warrants to each Exchange Stockholder, with respect to the transactions contemplated hereby, as follows:
(a) Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.
(b) Corporate Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company and the Companys stockholders, subject to compliance with Section 2.2(c) and the approval of and adoption by the Companys stockholders of the Certificate of Incorporation. Any and all rights of first refusal or co-sale held by the Company or the Companys stockholders that are applicable to the transactions contemplated hereby have been waived or are otherwise inapplicable. Assuming the due authorization, execution and delivery by each Exchange Stockholder, this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity).
(c) Governmental Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental authority other than (i) the filing by the Company of the Certificate of Incorporation with the Secretary of State of the State of Delaware and (ii) compliance by the Company with any applicable requirements of any applicable state or federal securities laws.
(d) Non-contravention. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby do not and will not, assuming compliance with the matters referred to in Section 2.2(c) and approval of and adoption by the Companys stockholders of the Certificate of Incorporation, (i) violate the certificate of incorporation or bylaws of the Company, (ii) violate any law or order applicable to the Company, (iii) require any consent or other action by any person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right obligation of the Company or to the loss of any benefit to which the Company is entitled under any provision of any agreement or other instrument binding upon the Company or (iv) result in the creation or imposition of any lien on the Class B Shares other than as set forth or contemplated by this Agreement or the Certificate of Incorporation.
3. Miscellaneous.
3.1 Waiver of Right of First Refusal. The Company hereby waives any preexisting rights of first refusal applicable to the transactions contemplated hereby.
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3.2 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.
3.3 No Assignment. The terms and conditions of this Agreement, including all obligations and rights therein, may not be assigned.
3.4 Amend or Waive. This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by each of the parties hereto.
3.5 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
3.6 Entire Agreement. This Agreement shall constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing among the parties are expressly canceled.
3.7 Counterparts; Facsimile. This Agreement may be executed and delivered by facsimile signature, including electronic signatures, and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
3.8 Tax Consequences. The parties hereto intend that no gain or loss shall be recognized in the Exchange pursuant to Sections 368(a)(1)(E) and/or 1036 of the Code. The parties adopt this Agreement as a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a). Notwithstanding the foregoing, each Exchange Stockholder has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of the Exchange, investment in the Class B Shares and the transactions contemplated by this Agreement. Each Exchange Stockholder is relying solely on such advisors and not on any statements or representations of the Company or any of its agents in connection with the transactions contemplated hereby, except for the representations and warranties of the Company expressly set forth in Section 2.2 above.
[Signature page follows.]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
FIGS, INC. | ||
By: |
|
|
Name: | ||
Title: |
[Signature page to FIGS, Inc. Exchange Agreement]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
HEATHER HASSON |
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
CATHERINE SPEAR |
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CATHERINE SPEAR, AS TRUSTEE OF |
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THE CATHERINE SPEAR REVOCABLE TRUST U/A/D 12/18/2017 | ||
CATHERINE SPEAR, AS TRUSTEE OF |
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THE WINGAERSHEEK IRREVOCABLE TRUST I, U/A/D 10/15/2020 | ||
CATHERINE SPEAR, AS TRUSTEE OF |
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THE WINGAERSHEEK IRREVOCABLE TRUST II, U/A/D 10/15/2020 | ||
CATHERINE SPEAR, AS TRUSTEE OF |
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THE MAPLE TREE IRREVOCABLE TRUST, U/A/D 10/16/2020 |
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
TULCO, LLC | ||
By: |
|
|
Name: | ||
Title: |
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Exhibit 10.19
EQUITY AWARD EXCHANGE RIGHT AGREEMENT
This EQUITY AWARD EXCHANGE RIGHT AGREEMENT (this Agreement) is made and entered into as of [ ], 2021 by and among FIGS, Inc., a Delaware corporation (the Company), and the individuals listed on Exhibit A hereto (collectively, Founders).
RECITALS
WHEREAS, the Board of Directors of the Company (the Board) has determined that it is in the best interests of the Company and its stockholders to implement a dual class structure in connection with the Companys proposed initial public offering of its capital stock in a firm commitment underwritten offering (the IPO) pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act);
WHEREAS, in connection with the IPO, the Board has approved an Amended and Restated Certificate of Incorporation of the Company (the Certificate of Incorporation), which, among other things, if effected in connection with the IPO, would create two classes of common stock of the Company, Class A common stock, par value $0.0001 per share (Class A Common Stock), entitling holders to one (1) vote per share and Class B common stock, par value $0.0001 per share (Class B Common Stock), entitling holders to twenty (20) votes per share;
WHEREAS, the Certificate of Incorporation further provides that the Companys common stock, par value $0.0001 per share (Pre-IPO Common Stock), will, upon the effectiveness of the filing of the Certificate of Incorporation (the Effective Time), be reclassified as Class A Common Stock;
WHEREAS, the Founders hold stock option awards and restricted stock units, as set forth on Exhibit A (the Equity Awards), which were granted pursuant to the Companys 2016 Equity Incentive Plan and are currently exercisable for or settle in Pre-IPO Common Stock, and all such shares of Pre-IPO Common Stock underlying the Equity Awards will be reclassified as shares of Class A Common Stock at the Effective Time;
WHEREAS, the Board has determined that providing each Founder with the right to require the Company to exchange, as set forth herein, any shares of Class A Common Stock issued upon the exercise or settlement of such Founders Equity Awards for shares of Class B Common Stock of equivalent value as determined on the date of such exchange (which is expected to be at an exchange ratio of one-for-one) as part of the implementation of the dual class structure is advisable and in the best interest of the Company and all of its stockholders, including its stockholders other than the Founders; and
WHEREAS, the parties hereto intend that no gain or loss shall be recognized in any Exchange (as defined below) pursuant to Sections 368(a)(1)(E) and/or 1036 of the Internal Revenue Code of 1986, as amended (the Code).
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants made herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto agree as follows:
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1. Exchange Right and Exchange of Class A Common Stock.
1.1 Exchange Right. Subject to the terms and conditions of this Agreement, immediately following the Effective Time, the Company hereby grants each Founder the right (the Exchange Right) to require the Company to exchange any shares of Class A Common Stock that the Founder acquires following the Effective Time upon the exercise or settlement of the Equity Awards (the Eligible Class A Shares) for a number of shares of Class B Common Stock (the Class B Shares) of equivalent value as determined on the date of such exchange (which is expected to be at an exchange ratio of one-for-one) (an Exchange).
1.2 Exercise of Exchange Right.
(a) As a condition precedent to the exercise of the Exchange Right, the Company and the exercising Founder must mutually agree that no gain or loss will be required to be recognized for U.S. federal tax purposes on account of such exercise and related Exchange (the Exchange Condition).
(b) If the Exchange Condition is satisfied, the Exchange Right will be exercisable by the Founder by submitting a completed and fully-executed notice in the form attached hereto as Exhibit B (the Exchange Notice) to the Company on or prior to the Exchange Rights Expiration Date (as defined below) and the Exchange Right will be deemed to have been exercised immediately prior to 5:00 p.m. (Pacific time) on the date of timely delivery of an Exchange Notice.
(c) Failure to satisfy the Exchange Condition or to deliver an Exchange Notice prior to 5:00 p.m. (Pacific time) on an Exchange Rights Expiration Date will constitute an irrevocable waiver of the Exchange Right with respect to such Eligible Class A Shares.
(d) An Exchange Right cannot be exercised by a Founder with respect to any Eligible Class A Share more than once. No Founder will have an Exchange Right pursuant to this Agreement with respect to any shares of Class A Common Stock acquired by such Founder other than by the exercise or settlement of the Equity Awards set forth on Exhibit A.
1.3 Exchange of Shares.
(a) Within ten (10) calendar days after the Companys receipt of a properly executed Exchange Notice, and provided the Exchange Condition remains satisfied, the Company will complete the Exchange for the specified number of Eligible Class A Shares indicated in the Exchange Notice (Exercised Shares) by issuing, out of funds legally available therefor, a number of shares of Class B Shares to the exercising Founder of equivalent value as determined on the date of such exchange (which is expected to be at an exchange ratio of one-for-one).
(b)Upon effectiveness of the Exchange, the Company shall deliver to the exercising Founder such documentation as may be reasonably required to evidence that the Class B Shares have been duly issued and transferred to the applicable Founder.
(c)Upon effectiveness of the Exchange, the exercising Founder will no longer have any rights as a holder of the Exercised Shares that are the subject of the Exchange (other than the right to receive the Class B Shares in accordance with this Agreement). Such Exercised Shares will be deemed to have been redeemed by the Company in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered to the applicable Founder.
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1.4 Termination of Exchange Right. The Exchange Right will terminate (the Expiration Date):
(a) With respect to any shares of Class A Common Stock underlying Equity Awards that have not been exercised or settled as of the date such shares are forfeited in accordance with the terms of the agreements evidencing such Equity Awards; or
(b) With respect to any Eligible Class A Shares, the earlier of the date on which: (i) the Founder sells, transfers, or otherwise disposes of such Eligible Class A Shares (other than through a Permitted Transfer (as defined in the Certificate of Incorporation)); and (ii) the Final Conversion Event (as defined in the Certificate of Incorporation) occurs.
2. Representations and Warranties.
2.1 Representations and Warranties of the Founders. Each Founder hereby represents and warrants to the Company, with respect to the transactions contemplated hereby, as follows:
(a)Ownership; Authority. Each Founder has the full right, power and authority to enter into this Agreement and, assuming the waiver or inapplicability of any and all rights of first refusal or co-sale by the Company and the Companys stockholders that are applicable to the transactions contemplated hereby, to exercise the Exchange Right and transfer, convey and exchange the Eligible Class A Shares in accordance with this Agreement. Assuming the due authorization, execution and delivery by the Company, this Agreement constitutes a valid and binding agreement of such Founder, enforceable against such Founder in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity). Upon consummation of an Exchange contemplated hereby, the Company will acquire from Founder good and marketable title to the Eligible Class A Shares, free and clear of any and all liens, encumbrances and restrictions (except for restrictions on transfer arising under applicable securities laws or as set forth or contemplated by this Agreement, the Certificate of Incorporation or any other agreements to which such Founder and the Company are a party, and subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity).
(b)Governmental Authorization. The execution, delivery and performance by such Founder of this Agreement and the consummation of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental authority on the part of such Founder (excluding, for the avoidance of doubt (a) the filing by the Company of the Certificate of Incorporation with the Secretary of State of the State of Delaware and (b) compliance by the Company with any applicable requirements of any applicable state or federal securities laws). For purposes of this Agreement, governmental authority means any transnational, domestic or foreign federal, state or local governmental, regulatory or administrative authority, department, court, agency or official, including any political subdivision thereof.
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(c) Non-contravention. The execution, delivery and performance by such Founder of this Agreement and the consummation of the transactions contemplated hereby do not and will not, assuming compliance with the matters referred to in Section 2.1(b) and approval of and adoption by the Companys stockholders of the Certificate of Incorporation, (a) violate any governing document, including any trust agreement, applicable to such Founder, (b) violate any law or order applicable to such Founder, (c) assuming the waiver or inapplicability of any and all rights of first refusal or co-sale held by the Company or the Companys stockholders that are applicable to the transactions contemplated hereby, require any consent or other action under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any obligation of such Founder or to the loss of any benefit to which such Founder is entitled under any provision of any agreement or other instrument binding upon such Founder, or (d) result in the creation or imposition of any lien on such Founders Equity Awards, shares of Class A Common Stock underlying such Equity Awards, Eligible Class A Shares or Class B Shares, other than restrictions on transfer arising under applicable securities laws or as set forth or contemplated by this Agreement, the Certificate of Incorporation or any other agreements to which such Founder and the Company are a party.
2.2 Representations and Warranties of the Company. The Company hereby represents and warrants to each Founder, with respect to the transactions contemplated hereby, as follows:
(a) Corporate Existence and Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.
(b) Corporate Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby are within the corporate powers of the Company and have been duly authorized by all necessary corporate action on the part of the Company and the Companys stockholders, subject to compliance with Section 2.2(c) and the approval of and adoption by the Companys stockholders of the Certificate of Incorporation. Any and all rights of first refusal or co-sale held by the Company or the Companys stockholders that are applicable to the transactions contemplated hereby have been waived or are otherwise inapplicable. Assuming the due authorization, execution and delivery by each Founder, this Agreement constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors rights generally and general principles of equity).
(c) Governmental Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby require no action by or in respect of, or filing with, any governmental authority other than (i) the filing by the Company of the Certificate of Incorporation with the Secretary of State of the State of Delaware and (ii) compliance by the Company with any applicable requirements of any applicable state or federal securities laws.
(d) Non-contravention. The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated hereby do not and will not, assuming compliance with the matters referred to in Section 2.2(c) and approval of and adoption by the Companys stockholders of the Certificate of Incorporation, (i) violate the certificate of incorporation or bylaws of the Company, (ii) violate any law or order applicable to the Company, (iii) require any consent or other action by any person under, constitute a default under, or give rise to any right of termination, cancellation or acceleration of any right obligation of the Company or to the loss of any benefit to which the Company is entitled under any provision of any agreement or other instrument binding upon the Company or (iv) result in the creation or imposition of any lien on the Founders Equity Awards, shares of Class A Common Stock underlying such Equity Awards, Eligible Class A Shares or Class B Shares other than as set forth or contemplated by this Agreement or the Certificate of Incorporation.
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3. Miscellaneous.
3.1 Waiver of Right of First Refusal. The Company hereby waives any preexisting rights of first refusal applicable to the transactions contemplated hereby.
3.2 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.
3.3 No Assignment. The terms and conditions of this Agreement, including all obligations and rights therein, may not be assigned.
3.4 Amend or Waive. This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by each of the parties hereto.
3.5 Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
3.6 Entire Agreement. This Agreement shall constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing among the parties are expressly canceled.
3.7 Counterparts; Facsimile. This Agreement may be executed and delivered by facsimile signature, including electronic signatures, and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
3.8 Tax Consequences. The parties hereto intend that no gain or loss shall be recognized in any Exchange pursuant to Sections 368(a)(1)(E) and/or 1036 of the Code. The parties adopt this Agreement as a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a). Notwithstanding the foregoing, each Founder has reviewed with his own tax advisors the federal, state, local and foreign tax consequences of the Founders Equity Awards and the potential acquisition of Class A Shares thereunder, the Exchange Right and the potential Exchange for Class B Shares, and the other transactions contemplated by this Agreement. Each Founder is relying solely on such advisors and not on any statements or representations of the Company or any of its agents in connection with the transactions contemplated hereby, except for the representations and warranties of the Company expressly set forth in Section 2.2 above.
[Signature page follows.]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
FIGS, INC.
|
By: _____________________________ |
Name: |
Title: |
[Signature page to FIGS, Inc. Exchange Agreement]
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first written above.
___________________________
HEATHER HASSON
2
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first written above.
_________________________
CATHERINE SPEAR
3
EXHIBIT B
Exchange Notice (the Notice)
To: FIGS, Inc.
Attn: Chief Legal Officer
The undersigned (the Founder), hereby irrevocably elects to exercise her Exchange Right pursuant to that certain Equity Award Exchange Right Agreement, dated as of [], 2021 (the Agreement), by and among FIGS, Inc. (the Company) and the individuals listed on Exhibit A thereto, to require the Company to exchange Eligible Class A Shares (the Exercised Shares) for a number of Class B Shares of equivalent value as determined on the date of the Exchange, subject to the terms of this Notice and the Agreement. Capitalized terms used but not otherwise defined in the Notice have the meanings assigned to them in the Agreement.
By executing this Notice, Founder hereby represents and warrants to the Company as follows:
1. Acknowledgements. Founder acknowledges and affirms that her representations and warranties set forth in Section 2.1 of the Agreement as of the date of this Notice are true and correct.
2. Restricted Securities; Rule 144. The Founder understands that the Class B Shares to be issued upon any Exchange are characterized as restricted securities under the Securities Act because such shares are being acquired from the Company in a transaction not involving a public offering and in exchange for shares acquired from the Company in a transaction not involving a public offering, and that under the Securities Act and the rules and regulations promulgated thereunder the Class B Shares may be resold without registration under the Securities Act only in certain limited circumstances, and subject to the restrictions under the Companys certificate of incorporation. Such Founder understands and hereby acknowledges that the Class B Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is otherwise available. Such Founder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit limited resales of shares purchased in a transaction not involving a public offering, subject to the satisfaction of certain conditions.
3. Legends. It is understood that any certificate or book entry position representing the Class B Shares will bear legends in substantially the following form (in addition to any legend required under applicable state securities laws or agreements to which Founder is a party):
THE SHARES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SHARES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SHARES MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Exhibit B to FIGS, Inc. Equity Award Exchange Agreement
4. Tax Matters. The Founder has reviewed with her own tax advisors the federal, state, local and foreign tax consequences of the Founders Equity Awards and the potential acquisition of Class A Shares thereunder, the Exchange Right and the potential Exchange for Class B Shares, and the other transactions contemplated by the Agreement. Founder is relying solely on such advisors and not on any statements or representations of the Company or any of its agents in connection with the transactions contemplated hereby, except for the representations and warranties of the Company expressly set forth in Section 2.2 of the Agreement.
__________________________________
[FOUNDER]
DATE:
Exhibit B to FIGS, Inc. Equity Award Exchange Agreement
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, 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 March 17, 2021, except for the effects of the stock split discussed in Note 2 to the financial statements, as to which the date is May 20, 2021, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-255797) and related Prospectus of FIGS, Inc. for the registration of shares of its Class A common stock.
/s/ Ernst & Young LLP |
Los Angeles, California
May 20, 2021
Exhibit 99.1
Consent to be Named as a Director Nominee
In connection with the filing by FIGS, Inc. of the Registration Statement on Form S-1, and in all subsequent amendments and post-effective amendments or supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Securities Act), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of FIGS, Inc. in the Registration Statement and any and all amendments and supplements thereto. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
Dated: May 20, 2021
/s/ Sheila Antrum |
Sheila Antrum |
Exhibit 99.2
Consent to be Named as a Director Nominee
In connection with the filing by FIGS, Inc. of the Registration Statement on Form S-1, and in all subsequent amendments and post-effective amendments or supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Securities Act), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of FIGS, Inc. in the Registration Statement and any and all amendments and supplements thereto. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
Dated: May 20, 2021
/s/ Michael Soenen |
Michael Soenen |
Exhibit 99.3
Consent to be Named as a Director Nominee
In connection with the filing by FIGS, Inc. of the Registration Statement on Form S-1, and in all subsequent amendments and post-effective amendments or supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the Securities Act), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board of directors of FIGS, Inc. in the Registration Statement and any and all amendments and supplements thereto. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.
Dated: May 20, 2021
/s/ Christopher Varleas |
Christopher Varelas |